It was yet another strong week for the market and countless stocks, many of which are breaking out to new highs. At some point the market may cool off, but for now at least, I’m not seeing any truly worrying signs. And in fact, the S&P 500 closed at a new record high as the index gained 1.44% on the week, while the Dow added 1.56%, and the Nasdaq rallied 1.63%.

After some choppy action the prior two or three weeks with defensive stocks leading, growth stocks and many major indexes have improved their standing - including the strongest names continuing to zoom higher. Now, near-term, there are some uncertainties, with earnings season and the election coming up, and there are still areas (including the Nasdaq itself) that are still battling with old resistance. Thus, we wouldn’t be shocked if extended names shook out a bit. But overall, we’re still leaning bullish, though are picking our spots; tonight we’re starting one more half-sized stake in a familiar name we think can do very well should the bulls remain in charge.

In the October Issue of Cabot Early Opportunities, we go deeper down the software rabbit hole, jump into a new grocery chain stock I suspect you’ve never heard of, dabble with a hot AI semiconductor stock and consider the potential of an EV stock that’s exploded on news of a big DOE loan.

As always, there should be something for everyone!

It was yet another strong week for the market and countless stocks, many of which are breaking out to new highs. At some point the market may cool off, but for now at least, I’m not seeing any truly worrying signs. And in fact, the S&P 500 closed at a new record high as the index gained 1.44% on the week, while the Dow added 1.56%, and the Nasdaq rallied 1.63%.

It hasn’t been any dramatic one- or two-day event, but the evidence has moved steadily toward the bullish case during the past couple of weeks. We will say that there are more than a few secondary factors that aren’t ideal, including the fact that interest rates are going up nearly every day, so we don’t think now’s the time to cannonball into the pool, per se, but we’re mostly holding our winners (booking the occasional partial profit on the way up) and gradually extending our line as new opportunities emerge. We’re lifting our Market Monitor to a level 8.

This week’s list is definitely growth-ier than the past couple of weeks, which is no surprise given the strength seen in that area. Our Top Pick has re-emerged after a brutal summer correction and has big leverage to a strong equity and crypto market. It’s not for the faint of heart, so use a loose stop if you go in.

Stocks are at all-time highs, yet again, defying the myriad potential macro tailwinds (expanding war in the Middle East, looming presidential election, another damaging hurricane, Q3 earnings season underway, etc.) that have been threatening to derail the market. One of them still could, but for now, we’ll stick with what’s in front of us, and that’s a market with plenty of momentum. Today, we lean into that momentum by adding a mid-cap tech stock recently recommended by Tyler Laundon to his Cabot Early Opportunities audience.

Details inside.

The markets have continued to flirt with new highs—pulling back and then moving forward—for the past month.

The Fed’s 50-basis-point rate cut inspired investors, home buyers, and those folks wanting to refinance their homes. The Mortgage Bankers Association reported that refinancing applications rose 20% right after the rate cut!

JPMorgan (JPM) is due to report results Friday, kicking off bank earnings season. Lately, the market seems to be more focused on earnings than Fed interest rates, and this is a good thing.

As markets move towards the “Great Rebalance”, looking to diversify portfolios with different asset classes and international stocks, the Explorer and I are headed to Europe, Asia, and Latin America during the next year. But today, stick to the U.S. and add a very familiar face to the portfolio.

There is a colossal housing shortage in this country.

A decade of underbuilding in the housing industry following the financial crisis has left the industry unable to meet the needs of the growing population. It is estimated that the demand for homes exceeds the current national supply by a whopping 4.5 million.

The jilted supply/demand dynamic has caused the median U.S. home price to soar a staggering 40% just since the pandemic. In addition, mortgage rates have soared to the highest level in two decades. The prices and mortgage rates are making housing unaffordable for vast numbers of potential buyers. Sellers are unwilling to trade up and get a higher mortgage rate.

There aren’t enough new homes, and existing homes aren’t coming on the market either. Buyers can’t buy and sellers won’t sell. But there is reason to believe the housing problems will get a lot better in the years ahead.

While the situation is likely to improve, the supply/demand imbalance will likely remain for several years. That’s a problem for the housing market and economy to work through. But it’s good news if you’re a homebuilder. New homes should be in high demand for years to come, and sales should increase with the improving conditions.

In this issue, I highlight the premier luxury home builder in the U.S. The stock has the best track record of all large homebuilders, and the company is in an ideal position to benefit from high demand and increasing buying in the years ahead.

Despite plenty to worry about in the market including the rising tensions in the Middle East and the short-lived port strike, impressively the S&P 500, Dow and Nasdaq all rose marginally last week.

In the market, it’s not the news that counts, but the market’s reaction to the news—and that makes last week’s trading noteworthy: Middle East attacks along with a dockworkers strike (that was quickly put off for a few months) could easily have sent risk-on assets reeling, but instead, most indexes took the news in stride and, somewhat surprisingly, we’ve seen defensive stocks hit the skids. Now, to be clear, there are still flies in the ointment out there, including the possibility of a counterstrike overseas (rumblings of that today), rising Treasury rates, and a lot of indexes, sectors and stocks are still rangebound. There’s no question there remain many stocks that act well (including tons of Top Ten names), but we’re staying in the same stance as we wait for upside confirmation from more of the market—we’re encouraged, but we’re leaving our Market Monitor at a level 7 as we wait for the buyers to truly flex their muscles.

This week’s list is another one with something for everyone in terms of stories and setups. Our Top Pick is a firm that has its hands in many nuclear power cookie jars; the stock just emerged from a multi-month rest on big volume.

Spooky season is upon us! Yes, the usual October selling has commenced, although it’s been fairly mild thus far. But things feel unsettled, what with the expanding war in the Middle East, a toss-up presidential election less than a month away, and with earnings season getting underway this week. So today, to counter any further turbulence, we trim one modest laggard and add a new, low-beta, dividend-paying European stock that’s been a favorite of Cabot Explorer Chief Analyst Carl Delfeld for some time.

Details inside.

With the completion of the Super Tuesday primaries, the final grid for the 2024 U.S. presidential election appears to be set. While it is always possible that some surprise will lead to a different lineup on one or both cards, our country is now on track for a rematch of Biden v. Trump. The election date of Tuesday, November 5, is less than eight months away.

In today’s note, we discuss the recent earnings reports from Bayer AG (BAYRY), Duluth Holdings (DLTH) and LB Foster (FSTR).

Luxury leader LVMH Moët Hennessy (LVMUY) CEO Bernard Arnault has a mantra that can be applied to business and investing: “In times of uncertainty, be patient.”

I would add that this requires playing both defense and offense.

Our offense has been working quite well of late: Super Micro Computer’s (SMCI) share price was up another 40% this week and is now up 300% since the start of the year. Sea (SE) had a good first week in our portfolio as well, up 22% after an encouraging financial report.

The market rally is forging ahead and making fools of the doubters, despite the Tuesday pullback. The S&P 500 is up 20% since late October and 7.5% so far this year as of Monday’s close.

The good times keep rolling. The S&P 500 continues to make new highs and closed last week up 7.7% YTD. Nine of the 11 S&P sectors are well into positive territory for the year so far.

As usual, the index is being led higher by technology, which is by far the largest sector. Technology stocks are up over 12% YTD. While no other stock sectors are up as much as the overall market, most of them are delivering very respectable returns for the year so far. The only down sectors are Real Estate and Utilities. But even these beleaguered sectors are only down 1.4% and 3.25% respectively YTD.

This week, we review earnings reports from Advance Auto Parts (AAP), Berkshire Hathaway (BRK/B), Dril-Quip (DRQ), Elanco Animal Health (ELAN), Fidelity National Information Services (FIS), Gannett (GCI), Macys (M), Six Flags Entertainment (SIX), Viatris (VTRS) and Warner Bros Discovery (WBD).

WHAT TO DO NOW: Remain bullish, but continue to be selective on the buy side. The market continues to act well, and we’re encouraged by the snapback seen in many leading stocks of late, as well as a fresh barrage of positive earnings reactions in recent days. In the Model Portfolio, we’re happy to own some very strong actors, and tonight we’re going add one new half-sized stake (5% of the portfolio) in Applovin (APP), while also restoring our Buy rating on Nutanix (NTNX), which reacted well to earnings today. Our cash position will be around 28%.

It’s amazing how much some of our stocks have moved over the last week while the average gain of our portfolio is almost EXACTLY the same as that of the S&P 600 Small Cap Index.

Measuring Wednesday to Thursday early morning, shares of Remitly (RELY) are up 18%, Docebo (DCBO) is up 17% and Enovix (ENVX) is down 12%. Taking a simple average of our positions’ change over the last five sessions, though, the average change is 0.7%. That compares to a 0.8% gain in the S&P 600!

All is well with the market so far this year. The S&P is up 6.7% in less than two months. It’s a continuation of the 23% rally that started at the end of October and a more than 40% rise from the bear market low in late 2022.

But recent news may jeopardize the current market dynamic. January CPI was higher than expected and indicated that the current problematic inflation isn’t dead yet. Sure, it’s way down from the 9.1% peak in mid-2022 to 3.1%, but it has been rising for several months and is still well above the Fed’s 2% target.

We’ve all seen the data: Nvidia (NVDA) shares have jumped 59% in this still-young (37 trading days) year and 615% since touching $112 in October 2022. The 171x gain in the past decade – turning a $4,500 purchase into $800,000 – makes Nvidia’s price increase among the largest in market history over such a brief period, and certainly the largest for a company that began its 10-year run at a not-small $11.6 billion market value.

Small caps traded slightly lower the first two sessions of this holiday-shortened week while the S&P 500 and Nasdaq wobbled a bit but enjoyed a bigger pop than small caps today.

Nothing high level that’s a huge priority at the moment, other than that today we saw a significant “risk on” rally as Nvidia’s (NVDA) monster quarter restoked the AI enthusiasm flame that was beginning to dim earlier in the week.

Given all the earnings reports, and another due up early tomorrow (DCBO) I’m jumping right into our stocks for short and sweet updates.

It was a relatively quiet week for Explorer stocks as a financial media frenzy focused an unprecedented amount of attention on the expected financials of one stock – Nvidia (NDVA).

Nvidia has quickly become the third most valuable company in the United States.

As of last Friday, about 30% of the S&P 500’s gain for the year was due to Nvidia, according to an S&P analyst.

Duolingo (DUOL) Moves to Hold

Since we introduced our GDX position back in early June 2022, we’ve managed to bring in 14.97% worth of premium and capital gains by using our simple income wheel approach. Comparatively, the stock is down 11.1% over the same time frame – once again proving the power of taking the patient, disciplined and conservative approach of the income wheel options strategy.

Moving Ironwood Pharmaceuticals (IRWD) to Sell

I will be exiting the Wynn Resorts (WYNN) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Since we introduced our PFE position back in early June 2022, we’ve managed to bring in 25.7% worth of premium and capital gains by using our simple income wheel approach. Comparatively, the stock is down 23.1% over the same time frame.

Wynn Resorts (WYNN) is due to announce earnings today after the closing bell.

APP and HUBS Report. Watch List Update

Rivian (RIVN) Reports

Enovix (ENVX) and Intapp (INTA) Deliver

TransMedics (TMDX) and Alphatec (ATEC) Report

Sell ATI (ATI) For a Quick 15% Gain; Krystal Biotech (KRYS) Reports

I want to sell a bear call spread in SPY going out to the December 15, 2023, expiration cycle. As mentioned in our alert Friday and issue today, I want to take advantage of the current short-term oversold readings and two unclosed upside gaps from last week.

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.