The AI theme came under heavy pressure last Monday, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

The news today is all about the tariffs, but to this point, most things are simply hacking around in a range, so we’re fine holding resilient titles and ditching those that crack. Our biggest thought beyond the headline news or daily reactions is that, unless you’re hopping in and out of things every couple of days, there’s no real money being made of late, with selling on strength seen and headline news causing big moves up and down most days. To be clear, that’s more descriptive than predictive, but until something changes, we favor keeping new positions on the small side, holding some cash and practicing patience waiting for this ping-pong action to stop. We’re leaving our Market Monitor at a level 6 today.

We will say, however, that this week’s list is encouraging—it’s very growth heavy, and even after today’s pothole, many names are in position to get going if the market allows it. Our Top Pick is in the midst of a solid-looking nine-week rest after a huge comeback in the second half of last year.

Tariffs are here, and the market doesn’t like them. But how long are they here for? As this morning’s deal with Mexico to delay them by a month reveals, it’s possible tariffs are being used as more of a scare tactic than a permanent penalty. If so, that would be good for stocks. But the best thing to do with tariffs as an investor is to ignore them and focus on stocks that are performing well. And today, we do just that, adding a promising biotech that caught the attention of Cabot Top Ten Trader Chief Analyst Mike Cintolo.

Details inside.

The AI theme came under heavy pressure Monday of last week, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

The AI theme came under heavy pressure Monday of last week, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

“More investment does not necessarily lead to more innovation.”

“When doing something, experienced people will tell you without hesitation that you should do it this way, but inexperienced people will have to repeatedly explore and think seriously about how to do it, and then find a solution that suits the current actual situation.”

—Liang Wenfeng, founder of the company that created DeepSeek

As has been the case for the past decade, the fate of cannabis stocks lies largely in the hands of politicians.

Cannabis companies have been getting solid support from state-level politicians. Forty states now allow sales of medical cannabis.

Sure, they are permitting too many stores, and that is putting downward pressure on pricing. At some point, the market sorts that out. Prices will fall to a point where it is no longer that enticing to bring on new supply, yet companies will have gotten lean enough to produce profits. We are not there yet. But we will get there.

Lost in the frenzy surrounding all things AI are companies that fall under the “boring but important” category. This includes producers of everyday things we often take for granted but which are nonetheless crucial for the smooth functioning of countless segments of the economy. To be fair, these otherwise “boring” industries quite often provide investors with outsized opportunities for profit due to their under-the-radar nature.

January was shaping up to be another stellar month for stocks. The S&P 500 closed last week 3.73% higher for the month.

But stocks came crashing down on Monday when a Chinese start-up claimed that its highly popular AI assistant performs equally as well as leading models at much cheaper prices and using far less data. It calls into question the anticipated demand growth for AI.

But the selloff is probably an overreaction. This is the problem with high-flying stocks. Any bad news gets dramatically amplified because euphoria is so easy to disappoint. The AI catalyst is still very real. But it may have gotten ahead of itself. A day like Monday was bound to happen. It also creates opportunity.

In this issue, I highlight one of the best technology stocks on the market. It was riding high for good reasons, rapidly growing profits. Monday’s overreaction prompted the worst selloff of the stock in years. There is likely to be a bounce back and the stock can generate very high-priced calls.

Despite some wobbles early in January, the S&P 500 closed at a new all-time high on Thursday. And even though the indexes pulled back marginally on Friday, by week’s end the S&P 500 had gained 1.7%, the Dow had rallied 1.83% and the Nasdaq had added 1.53% (though the Nasdaq got hit again on Monday, led lower by AI stocks).

We’ll let everyone else fight it out over the meaning and truthfulness of the DeepSeek revelations—as always, we’ll stay focused on the actual evidence, and here’s what we see: First off, the broad AI infrastructure areas look very iffy; the odds favor most chips, networking and electricity stocks are in the so-called penalty box. That said, the rest of the market took on water today but didn’t look abnormal. We do view the dramatic action as a yellow flag but we’re also not panicking as many of the names that had begun to perk up/break out are still acting well enough. We think it’s prudent to drop our Market Monitor back to a level 6 and take things on a stock-by-stock basis from here.

This week’s list does have a couple of AI-related names that got whacked, but the rest are from other areas that look fine. Our Top Pick is a name that looks like it’s finally, decisively changed character. Start small and aim for dips.

Something called DeepSeek out of China helped bring the rally in U.S. stocks to a screeching halt to start the week. Artificial intelligence stocks, in particular, are taking it on the chin, as it appears the Chinese firm may have found a cheaper, just-as-advanced alternative that’s rattling the likes of even Nvidia (NVDA). Chances are, the selling is overdone. But it’s a good time to look for overseas alternatives. And today, we add a Dutch company that plays an essential role in global travel – and one that’s taking advantage of the many missteps of its larger U.S. rival. It’s a stock that was first recommended by Carl Delfeld in Cabot Explorer.

Details inside.

It’s the post-Labor Day market. Investors tend to start paying attention again after the summer. This refocus prompted one of the worst selloffs this year.

Investors were positive about things in the middle of August before they went on vacation and stopped paying attention. The market rode out the rest of the month in the same form. But investors coming back to real life after the summer realized that there might be more to worry about.

In today’s note, we discuss the recent earnings reports from Foot Locker (FL), along with our decision to completely exit our position in the stock and take profits. We also discuss the latest addition to the portfolio in the form of Zillow (Z).

WHAT TO DO NOW: We think the strong action from the mini-panic low in early August is a good sign the next big move is up—but the timing of that move is less certain, possibly getting going soon, but it could also take more time to set up. Our market timing indicators are improving, and so we’ll do a little more buying tonight, but we’re OK going slow here to see how the rally progresses from here. In the Model Portfolio, we’re adding a half-sized stake in Shift4 Payments (FOUR) and putting On Holding (ONON) back on Buy—though we’re also holding on to a cash position of around 32% and want to see further upside soon before putting more cash to work.

The S&P 600 Small Cap ETF (IJR) closed out last week on a high note as the index rallied 3.4% on Friday following comments from Fed Chair Jerome Powell in Jackson Hole that confirmed what investors were expecting, that an interest rate cut in September is likely.

Small caps have chopped around this week, inching a little lower but not making any dramatic moves.

The market is now pricing in a roughly 35% probability of a 50-bp rate cut next month, and just over 100 bp of easing by the end of this year.

It is a late-summer/early-fall rite of passage on Wall Street: After Labor Day, the institutional investors and hedge fund types return from their summer vacation homes in the Hamptons and immediately start selling. They sell out of their weakest positions that have been neglected and left to rot during the summer months, in the hopes of beefing up their quarterly returns before October brings a new quarter. The result is that September is, far and away, the worst month for stocks, with an average decline of -1.17% in the S&P 500 dating all the way back to 1928. The next-worst month is February, with a mere -0.14% decline.

That’s the bad news as we enter September. Here’s the good news.

This market just continues to impress with the S&P within a whisker of the all-time high in these waning days of summer.

Why shouldn’t the market be strong? Everybody expects the Fed to start cutting the Fed Funds rate next month. The benchmark 10-year Treasury rate has fallen below 4%. And there’s no recession in sight. We’re getting the lower rates without the requisite economic pain.

In today’s note, we discuss the recent earnings report from Advance Auto Parts (AAP). We also discuss two new additions to the portfolio in the form of YETI Holdings (YETI) and Alibaba Group Holding (BABA).

While the S&P 600 Small Cap ETF (IJR) hasn’t yet challenged its high for the year of 120.7, hit just prior to the market rout a few weeks ago, the index’s performance lately has still been impressive.

For most of this year the IJR bumped up against overhead resistance near 111. It finally blasted through in the second week of July. But that market turbulence from a few weeks ago seemed like it could put a lid on the index for a while.

That hasn’t been the case.

Small caps have come back swiftly, jumping back above that 111 level a week ago and acting very well this past week.

Explorer stocks had a good week, but I wanted to highlight that recently, Warren Buffett sold almost 400 million of Apple (AAPL) stock during the second quarter. The Oracle of Omaha sold about 390 million shares of Apple stock, reducing Berkshire Hathaway’s ownership to roughly 400 million shares.

Granted, Berkshire booked some giant investment gains during the second quarter, with Apple accounting for a big share of those winnings. This is nothing to sneeze at, but why did Buffett and company decide to sell the shares, thereby missing out on some big capital gains? Forbes notes that Apple’s average closing price in the second quarter was 186, which is well below the 226 at which the stock closed on August 20.

The success of headliners Walmart and Target in the last week has helped drive consumer staples stocks as a group up nearly 5% in August. No other S&P 500 sector has performed better this month. And yet, consumer staples are “only” up 14% year to date, trailing the gains in the S&P 500 (17.3%).

Thus, the sector as a whole is still undervalued. That spells opportunity.

What a difference two weeks make! From the close on Monday, August 7 to the close on Monday, August 14, the S&P 500 was up about 8% and is again flirting with the high.

The market fell a lot from mid-July to early August. But it has since recovered all the losses. While the S&P is back near the high, the last month has been a wild ride to nowhere. Now what?

What recession? After a terrible start to August, the market has completely turned around. The S&P 500 has moved 7.5% higher since August 5 and is again near the high.

The recession fears that contributed to the worst day for the market in over a year were overblown. And numbers have come out since that indicate a recession is unlikely any time soon. But the Fed is still expected to start slashing rates next month. It looks like we will still get the rate cuts without a recession. The market loves it.

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.

Shares of Netflix (NFLX) are trading down this morning after the company beat Q1 expectations. Revenue grew 15.2% to $9.4 billion (beating by 1.3%, or $125.2 million) while EPS grew 83.3% to $5.28 (beating by 16.7%, or $0.76). Net streaming additions was 9.3 million, way ahead of expectations.

As the market continues to push out expectations for a rate cut (Powell’s comments yesterday make this much more likely), we’re going to lighten up a little more, starting with Liquidity Services (LQDT), which moves to sell today.

Sell Second Half Remitly (RELY)

WHAT TO DO NOW: Continue to play things a bit carefully as the market’s position deteriorates. Our Two-Second Indicator and Cabot Tides are weakening, and leading stocks, which had been churning for weeks, are continuing to give up ground. It’s possible this morphs into some sort of news-driven shakeout (especially given the hourly Middle East headlines), but we’re simply taking it as it comes. We already have 28% cash in the Model Portfolio, but we’re going to pare back further, cutting our loss in our half position in Celsius (CELH) and selling one-third of our position in Pulte (PHM). Our cash position will now be around 36%.

A number of stocks that were doing well have seen momentum fade and/or turn negative lately, and this morning’s slightly hotter-than-expected CPI print and rising chatter about no rate cuts in 2024 isn’t helping.

Today we are going to close our two Bear Call Spreads (QQQ and SPY) in the Quant Trader portfolio. Here are the details:

An updated portfolio for Cabot Options Institute – Income Trader

An updated portfolio for Cabot Options Institute – Fundamentals: All-Weather Portfolio

An updated portfolio for Cabot Options Institute – Income Trader

An updated portfolio for Cabot Options Institute – Quant Trader

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.