Current Market Outlook


Nothing about the market really changed last week—small- and mid-cap indexes are lagging and most indexes are still trading tightly with in 10-12 week ranges, but the Nasdaq is in a firm uptrend and leading Top Ten stocks are acting great. The question now is whether the recent push higher that began in mid-April will broaden out; the S&P 500 has been knocking on the door of new highs (above 2,400) and the small- and mid-cap indexes found support at their 50-day lines today. If we see buying pressures strengthen, it could lead to another batch of leaders emerging in the weeks ahead and be a big feather in the bulls’ cap. It’s something to watch for, but right now, we’ll stick with our current stance, keeping our Market Monitor at level 8.

This week’s list has a ton of very attractive growth stories; it was hard to select just one as our Top Pick. But with big-cap growth stocks in favor, we chase Nvidia (NVDA), which has exploded out of a four-month consolidation following a great earnings report.

Stock Name	Price	Buy Range	Loss Limit
Atlassian (TEAM)	182.16	34.5-36.5	32-33
Electronic Arts (EA)	0.00	105-110	97-100
Five Below (FIVE)	134.58	49.5-52	46-47.5
HubSpot (HUBS)	582.89	68-71	63-65
IPG Photonics (IPGP)	0.00	132-138	123-126
NVIDIA Corporation (NVDA)	242.42	127-134	117-120
Ryanair DAC (RYAAY)	0.00	97-101	89.5-91.5
Tesla, Inc. (TSLA)	818.87	307-319	282-289
Trade Desk (TTD)	468.02	48-52	42-45
XPO Logistics (XPO)	0.00	52.5-55	48-49.5

This month, I introduce a new stock that has outshined most stocks in the retail sector. The company will add 100 new stores in 2017, which will surely add significant growth, but there’s much more to the story. Today’s issue describes how this specialty retailer has thrived in a difficult sector.

Our Spotlight Stock this month became a common household name to many investors during the tech revolution. The Internet/mobile chip provider not only managed to survive the boom and bust, but has come out on top of the growing semiconductor sector for low-cost chips for the exploding biometrics identification industry. Nancy’s Feature further explores the tremendous demand for biometrics around the world.

The overall market is just OK here, as most indexes are still stuck in 10-plus week trading ranges. Our market timing indicators are positive, but it\'s hard to say the bull market is overly powerful here. However, the action among leading growth stocks has been fantastic since mid-April, with most of the stocks we own or are watching racing up the charts.

In choosing today’s stock, I leaned toward the growth side, because that’s what’s working best today. Then, to get an element of safety—because somewhere, sometime, a nasty correction is likely to hit the market—I chose a stock with very strong and growing institutional sponsorship, the kind of stock that has the potential to be the last stock standing when this bull market eventually ends.

Current Market Outlook


The broad market suffered some wobbles last week, mostly due to energy stocks taking some outsized hits. And we still want to see most of the major indexes lift out of their post-March 1 trading ranges as the Nasdaq is the only index to have achieved that. Even so, while those are factors to watch, the majority of evidence remains bullish—the long-term trend is up, many Top Ten stocks are performing well and the indexes are all at least a bit above their 50-day moving averages. All in all, then, we’re bullish, though it’s important to keep your feet on the ground by looking for solid entry points and taking some partial profits as your stocks advance.

This week’s list has many great stocks to choose from, most of which have recently reacted well to earnings. For our Top Pick, we’re going with a stock we’ve watched on and off for months that finally appears to be getting going—Zillow (Z) has come alive after a nine-month rest, and the story is as big as ever.

Stock Name	Price	Buy Range	Loss Limit
CoStar Group (CSGP)	589.55	240-250	223-228
MasTec, Inc. (MTZ)	66.65	44.5-47	41-43
Paycom Software (PAYC)	0.00	61-64	56-58
Sanderson Farms (SAFM)	149.54	110-114	102-104
SiteOne Landscape Supply (SITE)	98.49	47-51	43.5-46
Square, Inc. (SQ)	91.04	18.5-20	17-17.5
Summit Materials (SUM)	0.00	26.5-28	25-25.5
Universal Display (OLED)	187.54	107-115	94-97
WellCare Health Plans, Inc. (WCG)	271.83	163-168	152-154
Zillow (Z)	76.64	41.5-44	37-39

Today’s candidate provides digital health solutions to people with chronic health issues. Its biggest market is people with heart conditions, but it is branching out to the diabetes market as well. For a short window of time, I believe we can establish a position while shares are “on sale.”

This month’s Cabot Value Model contains a diversified list of buy recommendations, with a bias toward high quality companies in the Technology and Financial sectors. These and similar companies have propelled the Cabot Value Model to gain more than the Dow Jones Industrial Average, Standard & Poor’s 500 Index and Warren Buffett’s Berkshire Hathaway.

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.

The UK has voted to leave the European Union, and while the details of the separation will take years to figure out, markets are responding in typical knee-jerk fashion this morning.

The market’s reaction to the Brexit vote has dropped the iShares MSCI Emerging Markets ETF (EEM) by nearly 6%. Today, our only action will be to sell half of our position in Credicorp (BAP), our Peruvian bank stock.

If you own TSLA with a large profit, as many of my early subscribers do, I recommend that you continue to hold your shares.

Universal Electronics (UEIC) in the Growth Portfolio has risen to my price target of 69, and should be sold. I also reiterate my Buy rating on H&R Block (HRB).

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.