Issues
Growth as a whole has been stagnant for three months, and this week, we started to see the selling spread out a bit, with our Two-Second Indicator waiving a yellow flag and with more names coming under pressure (and with many growth stocks really caving in). To be fair, the top-down evidence isn’t much changed, so we’re flexible--if this is the final shakeout to the past three months of rest, there could be many things to sink our teeth into soon.
But as growth investors, we’re focused on the growth evidence, which tells us to remain in a cautious stance until the buyers step up.
But as growth investors, we’re focused on the growth evidence, which tells us to remain in a cautious stance until the buyers step up.
Large-cap stocks are starting to show some cracks. But small caps aren’t.
After years of underperformance, small-cap stocks appear to finally be poised for a breakout 2026 thanks to a combination of lower interest rates and soaring earnings. So in this month’s Cabot Value Investor issue, we present a small-cap company that is already coming off a very strong quarter, whose sales and earnings have more than doubled since Covid, but whose shares were overly punished last fall and are just now starting the long climb back. The combination of double-digit earnings growth and a well-below-average valuation makes this small cap ripe for our Buy Low Opportunities Portfolio.
Details inside.
After years of underperformance, small-cap stocks appear to finally be poised for a breakout 2026 thanks to a combination of lower interest rates and soaring earnings. So in this month’s Cabot Value Investor issue, we present a small-cap company that is already coming off a very strong quarter, whose sales and earnings have more than doubled since Covid, but whose shares were overly punished last fall and are just now starting the long climb back. The combination of double-digit earnings growth and a well-below-average valuation makes this small cap ripe for our Buy Low Opportunities Portfolio.
Details inside.
Industrial stocks are hot. So today we’re jumping into a small-cap precision‑engineering and motion‑technology company that has both a self-help and an improving end-market story.
This company has spent the past several years transforming itself from a niche motor supplier into a vertically integrated engineering platform. After a strong start to 2025, it looks like 2026 will be even better.
All the details are inside the February issue of Cabot Small‑Cap Confidential.
This company has spent the past several years transforming itself from a niche motor supplier into a vertically integrated engineering platform. After a strong start to 2025, it looks like 2026 will be even better.
All the details are inside the February issue of Cabot Small‑Cap Confidential.
Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.
The market hasn’t completely changed character at this point, but the recent action suggests that we’re at a key juncture here: After testing its October high, the Nasdaq has been fading, dragging down most other indexes while the number of new lows has picked up right off the recent high, all while defensive areas perk up—though, we’re also seeing many growth stocks hang in there well, with a few testing new high ground. All told, we’re again leaving our Market Monitor at a level 7, but we think the next few days will tell the tale of whether some new leadership can emerge … or whether a more general corrective phase gets underway. Stay tuned.
This week’s list has lots of strong names, including a few early earnings winners. Our Top Pick has a solid aerospace story but, like other names in this issue, is moving into the AI power space with some big future deals. We think nibbling on some here or on a further pullback makes sense.
This week’s list has lots of strong names, including a few early earnings winners. Our Top Pick has a solid aerospace story but, like other names in this issue, is moving into the AI power space with some big future deals. We think nibbling on some here or on a further pullback makes sense.
Stocks continue to prove resilient in the face of myriad economic and geopolitical fears. And the U.S. consumer – despite declining sentiment and confidence – is doing enough to make those fears seem overblown, pushing large-cap companies toward their fifth consecutive quarter of double-digit earnings growth. So today, we add a stock that’s well-known to the U.S. consumer – and one that’s making a strong comeback after being overly punished by investors. It’s a recent addition by Clif Droke to his Cabot Turnaround Letter portfolio.
Details inside.
Details inside.
Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.
Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.
Explorer stocks had a good week. MercadoLibre (MELI) shares were up 10.2% in their second week as an Explorer recommendation. Coeur Mining (CDE) shares are a juggernaut, up another 11.8% this week and more than 308% over the last year. TransAlta Corporation (TAC) shares were up 12.8% this week as the focus on energy stocks intensifies. Archer Aviation (ACHR) shares, however, declined 8.7% this week as the market is looking for clear signs the company is on track for FAA certification, so I’m moving this stock to a hold.
The last few years have been turbulent ones for passenger airliner JetBlue (JBLU) which, in spite of an industry-wide recovery, hasn’t experienced the lift that many of its peers have since 2024.
On an industry-wide basis, domestic passenger airlines fully recovered in 2024, even surpassing pre-Covid levels, with last year showing continued profitability, record traffic and strong demand. For JetBlue, however, the last couple of years have witnessed operational headwinds—underscored by a failed $3.8 billion merger with Spirit Airlines—forcing the airline to turn its focus inward to improve profitability.
On an industry-wide basis, domestic passenger airlines fully recovered in 2024, even surpassing pre-Covid levels, with last year showing continued profitability, record traffic and strong demand. For JetBlue, however, the last couple of years have witnessed operational headwinds—underscored by a failed $3.8 billion merger with Spirit Airlines—forcing the airline to turn its focus inward to improve profitability.
Cannabis investors continue to await a significant catalyst which may hit inside the next month or two.
I expect Attorney General Pam Bondi to implement President Donald Trump’s executive order to reschedule cannabis in that time frame. That’s my best guess based on analysis from people close to the process. No one knows for sure, however.
The news would spark a sellable rally for traders. Long-term investors should hold through.
Rescheduling means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. That will save the larger publicly traded cannabis companies tens of millions of dollars each in annual tax expenses. That’s because rescheduling neutralizes an IRS rule that bars the deduction of operating expenses against the sale of Schedule I substances.
I expect Attorney General Pam Bondi to implement President Donald Trump’s executive order to reschedule cannabis in that time frame. That’s my best guess based on analysis from people close to the process. No one knows for sure, however.
The news would spark a sellable rally for traders. Long-term investors should hold through.
Rescheduling means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. That will save the larger publicly traded cannabis companies tens of millions of dollars each in annual tax expenses. That’s because rescheduling neutralizes an IRS rule that bars the deduction of operating expenses against the sale of Schedule I substances.
Critical metals like copper, aluminum and even silver are commanding headlines, thanks to their uses in high-demand applications pertaining to the AI datacenter/infrastructure buildout trends. But lost in the shuffle is what some analysts are calling the “forgotten metal”—nickel. The base metal is heavily used in high-energy battery applications, including for its use in boosting range in EV lithium-ion batteries—particularly with long-range or premium vehicles—with high-nickel batteries currently dominating EV markets in North America and Europe.
Updates
It had to happen sooner or later, but the broad market is showing increased signs of stress as a result of what some have described as a case of “too much participation” from retail investors.
However, the good news is that this week’s increase in selling pressure across the formerly high-flying segments of the market serves to relieve some of that excess heat, particularly in the high-tech stocks. More importantly for our purposes, it also throws into sharp relief the usefulness of embracing the contrarian approach to investing that turnaround investors typically rely on.
However, the good news is that this week’s increase in selling pressure across the formerly high-flying segments of the market serves to relieve some of that excess heat, particularly in the high-tech stocks. More importantly for our purposes, it also throws into sharp relief the usefulness of embracing the contrarian approach to investing that turnaround investors typically rely on.
“You must dare to be independent. Contrarian impulses are usually better. They are always better in major bubbles and busts.” -Jeremy Grantham
To begin, please note that since it is down about 20% over the last month, I’m moving Grayscale Bitcoin Trust (GBTC) to Sell. This could bounce back but the selling pressure is steady.
To begin, please note that since it is down about 20% over the last month, I’m moving Grayscale Bitcoin Trust (GBTC) to Sell. This could bounce back but the selling pressure is steady.
Nextpower (NXT), Microsoft (MSFT) and GE Vernova (GEV) Report
Earnings season has arrived in full force. So far, cyclical companies are rallying and technology is faltering, just like before earnings.
Big tech earnings have been mixed so far, with more to come this week. Investors so far haven’t seen enough to change their view that AI investment is too high while revenues have not soared enough yet. That attitude could change soon or endure for a while longer. But AI will be back in favor at some point.
Big tech earnings have been mixed so far, with more to come this week. Investors so far haven’t seen enough to change their view that AI investment is too high while revenues have not soared enough yet. That attitude could change soon or endure for a while longer. But AI will be back in favor at some point.
Earnings season is getting hot and heavy. Results have been good so far, and continued positive earnings reports could ignite a bullish trend.
Several big tech companies report on earnings this week. The results could determine if the technology sector, and consequently the market indexes, move higher. It’s been a huge year so far for cyclical sectors, including energy, materials, industrials, and consumer stocks. The rally has broadened while technology has sputtered.
Several big tech companies report on earnings this week. The results could determine if the technology sector, and consequently the market indexes, move higher. It’s been a huge year so far for cyclical sectors, including energy, materials, industrials, and consumer stocks. The rally has broadened while technology has sputtered.
The long-awaited promise of inflation’s “impending” demise remains as distant as ever entering 2026.
Economists have been assuring us since at least 2023 that inflation is abating. But far from this, what we’re actually seeing is a weakening dollar that’s putting ever-more upward pressure on prices across several asset categories.
Economists have been assuring us since at least 2023 that inflation is abating. But far from this, what we’re actually seeing is a weakening dollar that’s putting ever-more upward pressure on prices across several asset categories.
WHAT TO DO NOW: Remain cautious. We have seen a couple of rays of light among the growth arena of late, though today’s wobbles (both in the market and in many stocks still being rejected at key levels) keep our growth measures pointed sideways to down. We’d like to put some money to work (both in some current holdings and some new names), and we could do so in the very near future if today ends up being the final shakeout to the Nasdaq’s three-month consolidation. But with the sell-on-strength pattern still with us for growth stocks, we’ll stand pat for the moment and look to see if more growth names can break free of the up-and-down action.
The S&P 500 walked higher for much of this week while small caps slipped from their recent highs.
We might get back to the pattern that existed in the first three weeks of the year (i.e., small caps outperforming) given weakness in some mega-cap names (i.e., TSLA and MSFT) after reporting and a little breather in small-cap strength.
We might get back to the pattern that existed in the first three weeks of the year (i.e., small caps outperforming) given weakness in some mega-cap names (i.e., TSLA and MSFT) after reporting and a little breather in small-cap strength.
After a brief tariff scare early last week, stocks resumed their regularly scheduled uptrend. All told, the stock market is doing just fine, with the major indexes touching new record highs. But certain sectors are doing more than fine.
Sector rotation is in full swing, with investors piling into some of last year’s most unloved sectors to kick off 2026. While technology continues to wallow, up less than 1% year to date and having topped right around Halloween three months ago, the following sectors have picked up the slack...
Sector rotation is in full swing, with investors piling into some of last year’s most unloved sectors to kick off 2026. While technology continues to wallow, up less than 1% year to date and having topped right around Halloween three months ago, the following sectors have picked up the slack...
Several stock sectors are killing it while the overall market sort of languishes.
The S&P 500 is doing OK so far this year. It’s up about 1.5%. Of course, the index really hasn’t advanced much at all since late October. That’s because technology has been struggling. Those stocks have a huge weight on the S&P and are a major determinant of index returns. But a major story is developing beyond the index averages.
The S&P 500 is doing OK so far this year. It’s up about 1.5%. Of course, the index really hasn’t advanced much at all since late October. That’s because technology has been struggling. Those stocks have a huge weight on the S&P and are a major determinant of index returns. But a major story is developing beyond the index averages.
The last couple of years haven’t exactly been kind on food, beverage and restaurant stocks. Generally speaking, the companies in the food and drinks category underperformed the S&P 500 last year, while in the case of restaurants, 2025 was a particularly bad one.
There’s been plenty of drama over the last week, but small caps don’t seem to care. Both the S&P 600 and the Russell 2000 are making new all-time highs.
FactSet reported this morning that the Russell 2000 has outperformed the S&P 500 Index every session this year. That’s impressive. Let’s look more closely at the S&P 600 Index because I have sector data for it. Impressively, through mid-day Thursday, every small-cap sector is outperforming its large-cap counterpart YTD. The strongest small-cap sectors are materials (+14.4%), energy (+13.4%), industrials (+12.3%), and tech (+11.7%). The weakest, utilities, financials and healthcare, are all up in the 4.4% to 5.3% range.
As a whole, the S&P 600 is up 9.2% while the S&P 500 is up just 1.2% YTD.
FactSet reported this morning that the Russell 2000 has outperformed the S&P 500 Index every session this year. That’s impressive. Let’s look more closely at the S&P 600 Index because I have sector data for it. Impressively, through mid-day Thursday, every small-cap sector is outperforming its large-cap counterpart YTD. The strongest small-cap sectors are materials (+14.4%), energy (+13.4%), industrials (+12.3%), and tech (+11.7%). The weakest, utilities, financials and healthcare, are all up in the 4.4% to 5.3% range.
As a whole, the S&P 600 is up 9.2% while the S&P 500 is up just 1.2% YTD.
Alerts
Nextpower (NXT), Microsoft (MSFT) and GE Vernova (GEV) Report
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.
WHAT TO DO NOW: While there’s been some modest improvement here and there, growth stocks continue to be unable to get going in any real way, with the Nasdaq stuck in the mud and our Aggression Index approaching multi-month lows. We already have a lot of cash, but today we’re pulling the plug on JFrog (FROG), which continues to have great fundamentals, but the stock (and the software sector overall) continues to sag. We’ll sell here and make sure a disappointing situation doesn’t get much worse.
Following yesterday’s after-hours preliminary Q4 earnings results, we are selling Beta Bionics (BBNX) today.
Portfolios
Strategy
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.