Current Market Outlook


There’s still another couple of weeks to go, but so far, earnings season has been good for the market, not only driving the major indexes to new highs last week but reinvigorating many growth stocks and launching a few fresh breakouts and new leadership. In the short-term, we expect continued volatility among the indexes and various sectors based on earnings reports and news flow (both financial and otherwise), with dips possible after last Friday’s moonshot advance. But the evidence remains bullish in the intermediate- and longer-term. Thus, we’re sticking with a bullish stance, and advise you to hold your strong performers and look to latch onto new leaders as they lift off, while getting out of any holdings that crack.

This week’s list has many earnings winners from last week in a variety of industries, as well as a few names set up well ahead of their reports. Our Top Pick is First Solar (FSLR), which looks like a powerful turnaround after blasting ahead following a blowout earnings report. Try to grab shares on dips.

Stock Name	Price	Buy Range	Loss Limit
Avis Budget Group (CAR)	0.00	40-42	36.5-38
Dana Holding (DAN)	0.00	28.5-30	26-27
First Solar (FSLR)	83.74	57-60	51-53
Flir Systems (FLIR)	0.00	44.5-46.5	40.5-41.5
GrubHub (GRUB)	140.03	57.5-60	53-54.5
Polaris Industries (PII)	0.00	113-119	104-107
PulteGroup (PHM)	45.93	28.5-30	26.5-27.5
STMicroelectronics (STM)	30.09	22-23.5	19.5-20.5
SVB Financial Group (SIVB)	0.00	212-220	197-203
Terex (TEX)	0.00	45-47	41.5-42.5

We’re adding a new 5.3% yielding stock to the High Yield Tier. Most of our other positions are rated Buy as well, and the market is strong, so if you’re underinvested, it’s time to put some money to work.

The market hit a pothole today, which isn’t totally unexpected given the recent run-up; in fact, in the short-term, we don’t see much of an edge either way, as earnings season is underway and growth stocks have generally been lagging.

However, longer-term, the evidence remains piled up on the bullish side of the ledger, both via our trend-following indicators and with a growing number of bullish studies. Thus, we remain heavily invested, though we remain choosy on the buy side given the market’s short-term uncertainties.

Today’s recommendation is a stock that you may never have heard of, and there are pros and cons to that. But it will certainly bring diversification to the portfolio, and I leave it to you to decide if the stock is right for your portfolio as well.

Current Market Outlook


In the short-term, there’s no question the market is “overbought” and there are some signs of complacency, so we’re not ruling out a market-wide shakeout, some kind of below-the-surface correction or simply a tricky earnings season. But the real money is in the intermediate- and longer-term moves, and on that front, the vast majority of evidence remains in the bull camp, as the trends of the indexes are pointed up, leading stocks are acting well and some new leadership is starting to emerge on earnings. Thus, our game plan remains the same—you should generally be holding your strong stocks (though booking a few partial profit is fine) and looking to do some buying either on pullbacks (for stocks that ran up strongly in September) or on powerful breakouts (likely on earnings).

This week’s list contains another varied batch of strong stocks, including a couple that have shown superb power in recent days. Our Top Pick is Skechers (SKX), which exploded higher last week after a blowout quarter—we advise starting small and adding shares if the stock continues higher.

Stock Name	Price	Buy Range	Loss Limit
Beacon Roofing (BECN)	0.00	53-55	49-50
Cree, Inc. (CREE)	67.96	32.5-34.5	29-30.5
Essent Group (ESNT)	0.00	42-44	39-40.5
HollyFrontier Corporation (HFC)	0.00	35-36	32-32.5
Michael Kors Holdings Limited (KORS)	73.22	47.5-49	45-46
Navistar International (NAV)	0.00	41.5-43.5	37.5-39
Proofpoint (PFPT)	113.79	91-94	87-89
Skechers (SKX)	0.00	32-34	28-29.5
Sohu.com (SOHU)	0.00	64-67	59-61.5
Zogenix (ZGNX)	46.50	36.5-38.5	33-35

Despite the sting of today’s pullback that included just about the entire market, the Cabot Emerging Markets Timer is holding on to its buy signal. We’re watching the big Party Congress in Beijing and are paying attention to the flat performance of a few of our stocks over the past few months. But with good profits in many of our stocks, we’re willing to be patient as we head into earnings season.

This month’s Spotlight Stock is a household name that ran into some challenges that put a dent in its stock price. But now with a new management team and favorable industry trends, the turnaround looks promising, and the stock price is certainly discounted—and attractive.

With today’s recommendation, I swing back to the aggressive side, with a technology company that is revolutionizing (well, maybe that’s too strong a word) the marketing industry. In any case, it’s growing very fast and it’s expected to turn profitable this year.

Has there ever been anything as overvalued as SpaceX (SPCX)?

Elon Musk’s rocket and space-based internet company reported $18.7 billion in revenue in 2025. That’s less than half the revenue declining electronics store chain Best Buy (BBY, $41.7 billion) generated last year, less than International Paper Company (IP, $23.6 billion), and barely more than Casey’s General Stores (CASY, $17.6 billion). Those three companies have a combined market cap of roughly $67 billion. As of this writing, SpaceX has a market cap of $2.7 trillion. That’s more than the combined market cap of Walmart (WMT), JPMorgan (JPM) and Visa (V). Together, those three companies generated $847 billion in revenue last year.

Small caps continue to hold up well. The S&P 600 Small Cap Index is up modestly since last Thursday and is trading just below the fresh all-time highs it hit earlier this week. The group’s resilience stands out, especially against a backdrop of narrowing leadership and ongoing rotation beneath the market’s surface.

The main macro development this week was the Fed’s June meeting and Chair Kevin Warsh’s press conference, which confirmed a shift in policy direction.

WHAT TO DO NOW: The market’s bounce has been a good one, and the intermediate-term outlook remains bright. That said, near term, there are still some crosscurrents (rotation into the broad market, Dow outperforming the Nasdaq) that tell us growth stocks could throw us another curveball in the coming week or two. Overall, then, we’re mostly standing pat, but we’re going to add a half-sized stake in Guardant Health (GH) here, leaving us with a still-good-sized cash position of 37% or so. Details below.

Stocks started this week with a huge rally as the Iran ceasefire deal appears to be the real thing.

Of course, it’s been months of supposed peace deals falling apart. It’s hard to believe. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons.

Stocks are starting off this week with a huge rally as the U.S. and Iran have reached a ceasefire deal.

We’ve been here before. These peace deals have fallen apart several times. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons. First, it’s the furthest a peace deal has gotten with both sides agreeing and independent verification from Pakistan. Second, this is what a peace deal would look like at this point if it’s real and lasting.

[Note: The Cabot Turnaround Letter weekly update won’t be published next Friday, June 19, due to the market being closed for the Juneteenth holiday.]

Before we get into the main topic for today’s newsletter update, a quick note on the portfolio is in order. I’m continuing our “spring cleaning” effort that we began last week by trimming a couple more of our holdings, but I’m also adding a new position to take the place of the recent deletions.

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 set to enter the summer near all-time highs, but leadership has narrowed, volatility has ticked up, and there’s been renewed scrutiny on the AI trade and valuation concerns in some of the market’s biggest winners.

At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.

Tech, commodity, AI, and Explorer stocks struggled this week as concern over capital expenditures increased. Mideast tensions intensified and inflation numbers came in yesterday at their highest rate in over three years, fueled by rising energy costs. The combination of anticipated higher interest rates and rising bond yields impacted the price of precious metals, with gold sliding below $4,200 an ounce and silver falling below $64 an ounce.

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.

USA Technologies (USAT) reported quarterly results this morning that came in just about as expected.

I’ve steered clear of small caps that would have been heavily influenced by either a Trump or Clinton victory, so I don’t expect to make any moves in our current portfolio based solely on today’s results.

While many investors will be selling stocks in panic today, fearful of the unknown, I recommend that you sit calmly. Wait for the panic to pass and the dust to settle.

Southwest Airlines (LUV) reported weak sales and earnings, and increasing costs could put a damper on earnings for an extended period. I recommend selling your LUV shares now.

Momo Inc. (MOMO) reported earnings before the open today and the results looked great, with revenue, earnings and guidance all coming in ahead of analysts expectations.

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.