Current Market Outlook


Impeachment talk stole the headlines last week, and China trade issues remain one of the chief economic concerns, but overall, the market remains healthy, with all major indexes in uptrends and most just a couple of weeks off their recent highs. Nevertheless, making money remains difficult, as the forces of rotation have been sending old leaders to the locker room and trotting out fresher new leaders to take their place. This is actually good for the health of the bull market, but it does make investing more difficult, so you should continue to tread carefully, in particular by choosing low-risk entry points and being ruthless at cutting loose your worst performers. As for the market monitor, we’ll stand pat this week, as the flurry of selling late last week has created some decent entry points.

This week’s list includes a great variety of stocks, and our Top Pick is a lower-risk insurance stock, Arthur J. Gallagher (AJG), which has been building a base over the past couple of months and looking ripe to resume its uptrend.

Stock Name	Price	Buy Range	Loss Limit
Arthur J. Gallagher (AJG)	89.27	87-91	84-86
Chubb Group (CB)	153.34	156-164	150-152
Entegris (ENTG)	48.08	46-48	41-42
Garmin (GRMN)	97.45	81-87	77-78
Insulet (PODD)	175.69	154-168	145-147
Jabil Inc. (JBL)	41.50	34-36	31-32
MasTec, Inc. (MTZ)	66.65	62-65	59-61
Synnex Corp. (SNX)	129.70	110-113	105-108
Taylor Morrison Home (TMHC)	27.51	24-26	22-23
Weight Watchers International, Inc. (WW)	35.33	35-38	30-32

The majority of the evidence when it comes to the overall market remains positive, but the environment for individual growth stocks remains very challenging—many are still holding up well, but no real money is being made as waves of selling pressures show up every couple of days. We’re still holding our resilient names and aren’t opposed to new buying here or there, but it’s important to hold some cash and keep new buys small until the bulls step up to the plate for more than a few hours at a time.

The cannabis sector remains in a correction, weighed down in part by fears of vaping illness, but many stocks are doing considerably better than the sector and our challenge is to own the right ones—so that we can succeed both short-term and long-term.

A huge new industry is being born in American energy exports. Because of new technologies in fracking and horizontal drilling, America has gone from being hopelessly dependent on energy imports to the world’s preeminent energy powerhouse and the number one producer of both oil and gas in less than ten years. In order to export natural gas across the oceans, it needs to be converted to liquid form (LNG), loaded onto tankers and shipped overseas. Until recently, the US did not have the facilities necessary to do that. But one company was the first to have such facilities and it’s up and running. And business is booming with no end in sight. This month’s “featured buy” operates the first and largest US LNG terminal, while LNG is the fastest growing commodity in the world. The stock has blown away the returns of the S&P 500 at a time when stocks in the energy sector were the worst performing on the market. Yet the stock is still reasonably valued and pays monstrous and growing 5.15% yield.

The market remains healthy, with all major indexes in uptrends and no major signs of divergence, and thus I continue to recommend heavy investment in stocks that meet your portfolio’s goals.

This week’s recommendation is an American apparel company whose stock is cheap and thus has great capital gains potential. Plus it pays a 5.8% dividend!

As for the current portfolio, most of our stocks are performing fine; a few are hitting record highs; and one or two stocks have become worrisome, but not enough to cause me to take action.

Welcome to the first Issue of Cabot Early Opportunities. This month’s Issue delves into a number of fast growing software names that look good on modest pullbacks, as well as one that’s brand new to the public market. I also cover some early-stage stocks posting big growth from beyond U.S. borders. We don’t venture too far down the market cap curve, or get into any pre-revenue names this month. But we will, once this modest growth to value rotation is behind us. Enjoy!

Current Market Outlook


Last week began with a reaction to an attack on Saudi Arabia’s oil infrastructure, moved on to a confusing Fed statement concerning future rate moves and ended with fears that U.S.-China trade talks were breaking down. But despite all of that and a solid rally the week before, the major indexes held firm, which is a constructive sign and keeps the intermediate-term trend pointed up. Individual stocks remain mixed, with lots of crosscurrents among different sectors and themes, though we are seeing an increasing number of solid charts and set-ups. Overall, the evidence tells us this is still a bull market, which isn’t to be forgotten—you should be keeping your optimist’s hat on. But with individual stocks still a bit topsy-turvy, you should pick your spots (and stocks) carefully. We’ll leave our Market Monitor at a level 6, though a bit more positive action could push that up.

This week’s list includes many fresher names that money is now flowing into. Our Top Pick is Pinduoduo (PDD), which, after a big earnings-induced breakout and run higher, has pulled back in an orderly fashion.

Stock Name	Price	Buy Range	Loss Limit
Apollo Global Management (APO)	39.69	39-40.5	35.5-36.5
Boot Barn (BOOT)	43.24	35-37	31.5-32.5
GDS Holdings Limited (GDS)	80.15	41-43	37-38.5
Generac Holdings (GNRC)	86.60	78-80	71-72
HUYA (HUYA)	21.51	26-27.5	23-24
J.B. Hunt (JBHT)	115.27	110-114	102-104
KB Home (KBH)	36.05	30-32	27-28
KLA Corp. (KLAC)	158.80	150-154	136-139
Pinduoduo (PDD)	87.53	32-33.5	27.5-28.5
TopBuild (BLD)	111.00	93-96	86-87.5

A Fed rate cut was offset by Mideast uncertainty but our portfolio soldiered on having another positive week. The Emerging Market Signal is just short of turning positive due to the lack of a clear uptrend but we have a new recommendation at the heart of “The Internet of Things”.

After two near-record-setting months, stocks are encountering their first real turbulence since March. It’s no surprise.

While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.

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.

The shares of this restaurant company were also just initiated as ‘Outperform’ by Baird.

Given the shakiness of the broad market, we want to be reducing our exposure to weak stocks today. As noted in yesterday’s update, we’re going to reduce risk today by taking partial profits in one of our positions.

Zack’s recently raised this chemical company’s rating to ‘Strong Buy’, citing rising earnings estimates.

In my last major update about marijuana stocks, I wrote, “odds are the correction is not over yet. Odds are, the correction will go longer, until traders’ enthusiasm for the sector has truly cooled. Happily, the more time passes, the more the fundamentals of these fast-growing companies get to catch up to the stocks!”

In the past 30 days, five analysts have raised their earnings estimates for this Canadian auto dealer.

The top five stocks in this fund are indicated in this article.

Five analysts have increased their earnings estimates for this internet mailing company in the past 30 days.

The shares of this tech company were recently upgraded to ‘Positive’ by Susquehanna, who cited the company’s ‘hypergrowth’ and raised its price target to $41.

This stock released earnings yesterday, so I’m discussing its share price, its fourth quarter earnings report and the company’s outlook. But I also want to talk about the differences between thriving companies and failing companies, and the murky in-between.

We list the top five holdings of this Japanese closed-end fund.

At this point it seems prudent to trim three underperforming positions that haven’t been working well for us—especially since all three are at, or just below, the pivotal points I’ve been monitoring for several weeks.

The shares of this brokerage company were recently upgraded by Keefe Bruyette & Woods, to ‘Outperform’, and by Barclays to ‘Overweight’.

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.