Last week’s pullback in the major indexes was pretty disappointing, but when we took a look around at all the evidence this weekend nothing much had changed on an intermediate-term basis: Most leading stocks are acting fine, the trends are still pointed up for the major indexes and, while it’s been a bit more rotational of late, there are still plenty of fresher titles that are advancing. We’ll be watching everything going forward (including the still-steep uptrend in Treasury rates), but at this point, we remain optimistic. We’ll leave our Market Monitor at a level 8.

This week’s list is chock-full of growth-y names, many of them familiar ones. Our Top Pick is a big, liquid, well-sponsored e-commerce emerging blue chip that just catapulted out of a big base.

In our last issue before the holiday shopping season hopefully kicks off the next leg of the bull market, today we subtract two underperforming overseas positions and add a mid-cap defense stock recommended by Cabot Explorer Chief Analyst Carl Delfeld. We also put a bow on Q3 earnings season (minus this week’s Nvidia report, of course), which was mostly a force for good among the stocks in our portfolio.

Details inside.

Not surprisingly the post-election market wiggles continued last week as many stocks and sectors continued to show strength, while others got hit hard. By week’s end the three leading indexes had all lost ground as the S&P 500 fell 2.3%, the Dow declined by 1.7%, and the Nasdaq lost 3.65%.

Not surprisingly the post-election market wiggles continued last week as many stocks and sectors continued to show strength, while others got hit hard. By week’s end the three leading indexes had all lost ground as the S&P 500 fell 2.3%, the Dow declined by 1.7%, and the Nasdaq lost 3.65%.

The election results and Federal Reserve rate cut were seemingly just what the market was looking for as the S&P 500 rallied 4.7% last week, the Dow added 4.65% and the Nasdaq gained 5.4%.

The election results and Federal Reserve rate cut were seemingly just what the market was looking for as the S&P 500 rallied 4.7% last week, the Dow added 4.65% and the Nasdaq gained 5.4%.

It’s been a great couple of weeks in the market, with the major indexes lifting nicely since the election and, more important, with leading growth stocks acting very well—while there have been some earnings wobbles, there’s been even more big rallies, with some stocks going into the stratosphere. It’s been a good couple of weeks, and with the evidence bullish, we are too—but we’re also keeping our feet on the ground, trimming some names on the way up and aiming to enter some fresher leaders, ideally on weakness.

The markets reacted strongly—and bullishly—to the results of the presidential election and also found favor after the Federal Reserve’s quarter-point rate reduction.

As of today, they’ve pulled back a bit, awaiting the latest inflation report.

However, the economy continues rolling along. Unemployment remains steady, and consumer sentiment is positive. And while the housing market continues to be challenged by low inventory and rising prices, on the local level, I’m seeing improvement in both categories.

The election of Donald Trump has altered the trajectory of the economy and the market.

Investors perceive his election will deliver stronger economic growth, primarily through deregulation and tax cuts. Although interest rates spiked higher on the expectation of a stronger economy, the market views the revised prognosis as overwhelmingly bullish, so far.

The new administration will employ drastically different policies that will have a significant effect on different sectors and can’t be ignored. The most obvious sector beneficiary of the new administration is energy.

A huge beneficiary will be natural gas exports. The U.S. has recently become the world’s second-largest exporter of natural gas. Exporters ideally sell cheap American gas overseas where it fetches a much higher price. More production and cheaper domestic prices are ideal for exporters. At the same time, the new administration is likely to encourage as much natural gas exporting as possible.

In this issue, I highlight a company that runs the largest liquid natural gas (LNG) export facility in the country. It is a subsidiary of existing portfolio position Cheniere Energy (LNG), which is up 15% since the election. It pays a huge income and still sells at a reasonable price.

The election results and Federal Reserve rate cut were seemingly just what the market was looking for as the S&P 500 rallied 4.7% last week, the Dow added 4.65% and the Nasdaq gained 5.4%.

There were a few pre-election wobbles in the market, but last week’s action looks decisive, with many major indexes that had been capped below their summertime peaks bursting to new highs, while leading stocks went bananas, including many out-of-this-world moves on earnings. Now, to be fair, we’re still seeing some earnings duds, and the action is very hot and heavy, which raises the risk of some sort of near-term rug pull. Thus, it’s important to keep your feet on the ground—but overall, there’s no question the evidence is bullish and the buyers are control. We’re moving our Market Monitor back to a level 8 and could go higher if the buying pressures remain intense.

This week’s list is has something for everyone, with a couple of cyclical names sprinkled in among a batch of strong growth titles. Our Top Pick is showing great growth and just staged a solid breakout from a very tight area last week.

The election is over. Earnings season is largely behind us. And the Fed matched investor expectations by cutting rates by another 25 basis points. The result? A market at fresh all-time highs and with newfound momentum on the heels of a sluggish October. And the Stock of the Week portfolio is performing even better, with no fewer than 10 stocks (!) trading at new all-time or 52-week highs as of this writing.

So, let’s lean into the growth environment while it lasts by adding a mid-cap fintech software stock that Tyler Laundon introduced to his Cabot Early Opportunities readers last month.

Details inside.

Just when things were getting seriously ugly, the market started having a great week.

Interest rate disappointment is being replaced by earnings anticipation. The new earnings season came in the nick of time. After five straight up months, the S&P was having a terrible April. Last week was the worst week of the year so far and the index has fallen over 5% from the recent high.

Nokia (NOK) missed on revenue but beat on earnings yesterday, reporting EPS of $0.10/share, which exceeded estimates by over 50%. CEO Pekka Lundmark noted that 2024 will probably remain a weak year for the mobile RAN (radio access network) market, but reiterated expectations that it will likely pick up over the final two quarters. Declining demand for 5G equipment in the U.S./Canada, and a significant slowdown in China (also notably affecting AAPL) are the root cause, but economic data has only recently started to inflect.

The market continues to struggle with the rapid jump in interest rates (10-year at 4.63% after hitting 4.7% on Tuesday).

I think we’re still fluctuating somewhere between a code yellow and a code orange situation (was code green a few weeks ago!) so long as that yield doesn’t go over 4.7% and all hell doesn’t break loose in the Middle East.

When I started in this business as an institutional stockbroker, Peter Lynch, the portfolio manager for Fidelity’s Magellan fund, was seen as a master of the game. His forte was picking smaller growth stocks. Upon stepping down in 1990 after his fund became too big to make any small-cap stock pick meaningful, he had delivered, over a 13-year period, a 29% per annum return to investors.

His lessons still ring true today.

There’s a lot of noise out there. Sticky inflation and the Fed’s response to it; Iran getting involved in the Israel-Palestine war; war in Ukraine now in year three; a pivotal U.S. presidential election drawing ever closer; first-quarter earnings season underway, etc., etc. But the only thing that truly matters to the market, at least lately, is bond yields. Specifically, yields on the 10-year U.S. Treasury bonds. The last couple years, the inverse bond yield-stock market correlation has been undeniable.

After five consecutive up months for the market, April has been a bummer. Is this just an overdue end to the recent rally or something worse?

The S&P 500 is down 3.6% so far in April. But the more interest rate-sensitive sectors have faired far worse. Sure, the rally was long in the tooth anyway. But the narrative has also changed for the worse.

This market has been resilient. But that resilience is being severely tested. The next couple of weeks should tell us the near-term direction of stocks.

The S&P rallied higher for five straight months. That’s long in the tooth for any rally. The market is down so far in April and the story is changing for the worse.

Wells Fargo (WFC) kicked off the Cabot Turnaround Letter earnings season today, showing EPS of $1.26/share, which exceeded estimates by 17 cents. WFC also beat top-line revenue estimates by $710M, coming in at $20.86B. Despite the comfortable beats, WFC shares are essentially flat for the day.

The story of the week was yesterday’s slightly hotter-than-expected CPI report, which has shifted the rate cut narrative/speculation to only two cuts this year, down from three, and sent the 10-year yield north of 4.55% (it was below 4.4% last Friday).

While this morning’s better-than-expected PPI number has helped to soften the CPI blow, the debate from here is going to be just how long the Fed is willing to push its luck/try not to rock the boat and keep rates where they are.

Stocks have also been a bit stuck in the mud for the last month or so, partly because investor confidence in the Fed’s interest rate-slashing timetable has waned as inflation has remained stickier than expected. Wednesday’s CPI print didn’t help; March inflation came in at 3.5% year over year, a tad hotter than the 3.4% expected and up from 3.2% in February. The month-over-month increase was 0.4%, higher than the 0.3% bump that was anticipated. Stocks promptly sold off, with all three major indexes down more than 1% in early Wednesday trading.


Eventually, however, inflation will dip below that stubborn 3% threshold, and the Fed will start to cut short-term interest rates. We just don’t know when.

Cannabis stocks are generally flat since I sent you the March 27 issue of Cabot Cannabis Investor.

Given the potential magnitude of near-term catalysts, I suggest continuing to hold exposure to the group, and accumulating on weakness. If you have zero exposure, consider buying some now. If you have full exposure, consider adding on any substantial weakness of 2%-4% or more in this highly volatile group.

Let’s try to lengthen out our deltas a little so we can take advantage of any additional upside prior to the December 29, 2023, expiration cycle. If JPM rallies through the 160 strike, we will gladly close out the position for the year, take our profits, and wait for the new year to reestablish our position.

VTI is currently trading for 227.81.

Braze (BRZE) and Liquidity Services (LQDT) Report

In the Yale Endowment portfolio, we currently own the SPY January 17, 2025, 345 call LEAPS contract at $98.00. You must own LEAPS in order to use this strategy.

WHAT TO DO NOW: Continue to piece your way into leading stocks showing power—while also pulling any weeds out of your portfolio. In the Model Portfolio, we’re going to make two moves today: First, selling our stake in Noble (NE), which remains weak; on the flip side, we’ll fill out our position in Pulte Homes (PHM) by adding another half-sized position (5% of the account). The combination will still be in the mid-30% range. We may do a little more buying soon, but near-term, the market and some leaders are hitting a little turbulence, so we’ll just make these two changes today and go from there.

Sell Last Quarter Position Repligen (RGEN)

GitLab (GTLB) Pops on Q4 Results. Sell AppLovin’ (APP).

There is little to no value left in our XLU December 15, 2023, 56 puts. As a result, I’m going to buy them back, lock in profits and immediately sell more premium. I’ll be doing the same in a few other positions as we move throughout the week.

We have the opportunity to sell premium one more time before we close out our position for 2023.

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.