The breadth worries that had so many traders on edge finally reared their ugly head and took a bite out of the market as the indexes took a big hit on Wednesday. By week’s end things had improved a touch, but still the S&P 500 fell 2.45%, the Dow lost 2.54%, and the Nasdaq declined by 2.71% last week.

The breadth worries that had so many traders on edge finally reared their ugly head and took a bite out of the market as the indexes took a big hit on Wednesday. By week’s end things had improved a touch, but still the S&P 500 fell 2.45%, the Dow lost 2.54%, and the Nasdaq declined by 2.71% last week.

As we head into the end of the year, markets have paused though are still bullish. A little bit of worry is a sign of a healthy market and some of the pullback is no doubt taking profits for tax reasons.

The budget showdown in Washington, which needs to be settled by Saturday, is not helpful.

The Federal Reserve cut interest rates by a quarter point yesterday and in a preemptive move, suggested only two more reductions next year. This is a signal that interest rates will remain somewhat elevated as inflation that has come down significantly remains a stubborn trend.

We wrap up a fruitful year with a December Issue of Cabot Early Opportunities highlighting five names spanning everything from bottled water to social media to bitcoin mining.

I like the diversity of this Issue, which has something for everyone.

Many are surprised to learn that the concept of telehealth wasn’t a direct result of the Covid pandemic in 2020. Indeed, the practice of online consultations between patients and medical personnel has been practiced for over 20 years, and this month’s featured company is arguably the first one to bring it to global prominence.

By most measures, 2025 looks pretty good for stocks.

The Fed has begun a rate-cutting cycle that should last for the next two years. Historically, stocks do well when the Fed is cutting rates and there is no recession. And the economy has been solid. This bull market is just 25 months old and has returned 65%. Bull markets usually don’t just run out of gas after two years. In fact, the average bull market has lasted 50 months and returned 152%.

But stocks are expensive. The S&P currently sells at 22.3 times forward earnings compared to an average of 16 times over the last twenty years. The market returned 26% in 2023 and about 28% this year with two weeks to go. It might be tough for stocks to deliver another consecutive year of 20%-plus returns.

It may be that a lot of the easy upside is behind us. Stocks can still perform well, but they’ll probably have to earn it in 2025.

In this issue, I highlight a stock that is poised for a strong earnings rebound in 2025. It is a stock that bounces a lot between the highs and lows. And it is currently well below the high. It is also one of the best healthcare companies on the market at a time when the population is older than ever before and aging at warp speed.

For the second straight week, the leading indexes went in vastly different directions as the S&P 500 fell 0.6%, the Dow lost 1.9%, and the Nasdaq gained 1%.

After a huge run, last week definitely showed some short-term character changes for many stocks, especially leading titles, with some flashing legitimate abnormal action; even among the top-down evidence, we’ve seen sluggishness, with the broad market showing wear and tear as sentiment remains relatively buoyant. That said, there are still plenty of stocks either holding their own or still doing well, too, including some growth-y themes that are seeing fresh buying of late, a sign big investors aren’t going into hibernation. When you put it all together, we do think paring back some and seeing how things play out makes sense, but it’s as important as ever to take things on a stock-by-stock basis. We dropped our Market Monitor to a level 6 and will leave it there today, but we’re flexible and could ratchet it higher if growth stocks start to rebound strongly.

This week’s list has a wide assortment of names—but nearly all of them are growth-oriented, which we take as a good sign. Our Top Pick is a mega-cap that staged an awesome breakout on earnings last week. Near-term wobbles are possible, but we think big investors will support any dip.

The major indexes have mostly held serve near all-time highs this month. But beneath the surface, some selling has emerged, as high-flying growth stocks, the Dow, small caps and the Equal Weight index are all down in December. Is it a sign of broader selling to come? That may depend on language coming out of this week’s Fed speak and presumed rate cut. Regardless, I don’t think the bull market is on borrowed time – I expect it to continue well into 2025.

With that in mind, we reintroduce one of my favorite stocks – one that I previously added in the teeth of the bear market in 2022 before it took on too much water but has been rounding into shape for more than a year. Now, Carl Delfeld is recommending it to his Cabot Explorer readers. Today, we give it a second go-round with high hopes for next year and beyond


Details inside.

For the second straight week the leading indexes went in vastly different directions as the S&P 500 fell 0.6%, the Dow lost 1.9%, and the Nasdaq gained 1%.

For the second straight week the leading indexes went in vastly different directions as the S&P 500 fell 0.6%, the Dow lost 1.9%, and the Nasdaq gained 1%.

After an amazing run higher, growth stocks hit an air pocket this week, with many highfliers coming down and some abnormal action being seen. We haven’t exactly floored the accelerator during the past few weeks, and we took our cues from individual stocks, paring back this week and leaving us with a good-sized cash position. That said, we’re not making any major market call--the trends remain up, and many growth stocks are acting OK--so while we want to see how growth reacts from here, we’re flexible and could put some money back to work soon if key names stabilize.

It’s a new high! April was down. May was up. And June has been an up month so far. Hopefully, June will follow through and be another good month, but I’m still expecting a flatter market for a while.

The market goes back and forth with the interest rate narrative. But I don’t expect a resolution on that issue any time soon, or at least for the rest of the summer. Either the economy has to slow, or the Fed is going to at least leave rates where they are. But investors still insist on expecting rate cuts before the end of the year even though the economy looks strong.

Earnings season is largely over, so there were no companies that reported earnings this past week. However, we do have at least one company reporting next week – Ammo, Inc. (POWW). And the next earnings season is frankly just around the corner, with Walgreens Boots Alliance (WBA) announcing they’ll release their next round of results the last week of the month.

WHAT TO DO NOW: With the market’s intermediate-term evidence mixed, you should take things on a stock-by-stock basis—holding what’s working but selling what’s not, while holding some cash as we wait for the market and growth stocks to show their hand. Our Cabot and Growth Tides remain neutral and our Two-Second Indicator is iffy, so even though we do see a few tempting names, we’re going to hold our 35% cash position tonight and see if the bulls can step up for more than a few hours. We have no changes tonight.

It’s been a great market for a while. But it has leveled off since the middle of May. I expect more of the same going forward.

The S&P 500 pulled back in early April after a five-month rally as sticky inflation soured the interest rate narrative. The index then recovered to new highs in the middle of May on an improved interest rate outlook. But stocks have since leveled off as the interest rate outlook got stuck in the mud.

The market has leveled off since the middle of May. I expect more of the same going forward.

The S&P 500 pulled back in early April after a five-month rally as sticky inflation soured the interest rate narrative. The index then recovered to new highs in the middle of May on an improved interest rate outlook. But stocks have since leveled off as the interest rate outlook got stuck in the mud.

Duluth Holdings Inc. (DLTH) reported its fiscal first-quarter 2024 results, with revenues of $116.68 million, missing estimates by 2.52% and down from $123.76 million a year ago. The company posted a net loss of $7.9 million and Adjusted EBITDA of $1.8 million. Despite sales challenges, CEO Sam Sato highlighted improved inventory management and successful customer engagement campaigns. The company ended the quarter with $6.8 million in cash and updated its fiscal 2024 outlook to net sales of $640 million and Adjusted EBITDA of $39 million.

It’s been another week of small caps getting pulled around by moves in the 10-year yield, which is largely a function of Fed speaker commentary.

First it was Neel Kashkari (non-voter) sounding off with hawkish comments (yields up, small caps down), though it’s the inverse today after Raphael Bostic (voter) said he still thinks the Fed will be in position to cut rates in Q4.

Next up are NY Fed President John Williams (12:05 ET) while Dallas Fed President Lorie Logan speaks after the close today.

As we approach the end of May, the S&P 500 is still up 10% for the year, including a 4.6% gain so far in May. But the market was off yesterday as bond yields creep upwards. It was a lackluster week for Explorer stocks as well.

U.S. stocks trade at a P/E ratio over 21x earnings while European stocks trade at a cheaper 14x earnings on average. U.K. stocks look even more compelling at just 12x earnings.

Let’s talk about the elephant in the room: the presidential election.

No, I’m not going to touch the political ramifications of Biden vs. Trump, Round 2 with an 11-foot pole. For investors, that doesn’t matter. What matters is what typically happens to the stock market in election years. In the 20 presidential election years since 1944, the S&P 500 is up an average of 7.2% - not terrible, but well shy of the average 10% annual gain in the benchmark index.

The market has been good for a while. The S&P 500 is up roughly 11% YTD and about 30% since late October. But I expect choppier waters ahead.

The main driver of the S&P has been the technology sector, which is being driven higher by the artificial intelligence catalyst. Most of the rest of the market seems to be at the mercy of the interest rate narrative. And that seems to change every couple of weeks nowadays.

V.F. Corporation (VFC) reported a 13% revenue decline to $2.4 billion, missing expectations. Sales were down across the company’s brands, with North Face sales down 5%, Vans 26%, Timberland 14%, and Dickies 15%, with all regions seeing declines, led by a 22% drop in the Americas. Adjusted operating margin fell to -2.1%, with EPS at -$0.32 vs. $0.17 a year ago. On a slightly better note, inventory fell $382 million from Q4, and net debt is down to $5.3 billion. While CEO Bracken Darrell emphasized ongoing turnaround plans and leadership rebuilding, analysts downgraded the stock as the company’s $1.7B in debt maturities could lead to potential asset sales and dividend cuts.

WHAT TO DO NOW: Remain optimistic, but continue to pick your spots. Most of the evidence is positive, but the action among growth stocks is good but somewhat mixed, with many names acting great but some hitting air pockets and lots hitting resistance near prior highs. In the Model Portfolio, we’re doing a little reshuffling tonight—we’re going to sell one-half of DraftKings (DKNG) and sell one-quarter of Uber (UBER), but we’re also going to start another half-sized stake in On Holding (ONON). We’re also placing Pulte (PHM) on Hold. We’ll still have about 23% in cash after these moves. Details below.

Our PFE calls expired last week and since we are in the covered call phase of our income wheel approach, I want to sell a few more calls against our shares today, going out 38 days.

Google (GOOGL) continues to rally higher and has now pushed past its short call strike. As a result, the stock is up 26.3% since we introduced GOOGL. By comparison, our poor man’s covered call position in GOOGL is up over 85%.

I will be exiting our Visa (V) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Visa (V) is due to announce earnings after the closing bell today. The stock is currently trading for 271.33.

After selling premium today, our IBM position is already up 31.6% since we initiated it just three weeks ago.

Our IBM position is already up over 12% since we initiated it just over two weeks ago.

I want to add some downside exposure; so, with QQQ trading for 422.16, I want to place a short-term bear call spread going out 38 days and outside of the expected range to the upside, or 440. My intent is to take off the trade well before the March 1, 2024, expiration date.

I’m selling more premium in DKNG and GDX today. As stated in the weekly report yesterday, January has been a good month so far as we have locked in over 10% worth of options premium through our Income Trader wheel approach. If all goes well this week, we should be able to add to our January totals as our PFE calls are due to expire.

I’ll be sending out alerts for several of our Fundamentals portfolios over the next two days as we stay mechanical and roll our January 19, 2024, calls into the February/March expiration cycles. For those who are new to the service and wish to add a position, please read through the alert carefully.

Moving Ironwood Pharmaceuticals (IRWD) to Sell

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.

I’ll be sending out alerts for several of our Fundamentals portfolios over the next two days as we stay mechanical and roll our January 19, 2024, calls into the February/March expiration cycles. For those who are new to the service and wish to add a position, please read through the alert carefully.

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.