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Current Market Outlook


The market staged a nice-looking rebound today, especially given that both the S&P 500 and Nasdaq were hanging around their 50-day lines coming into today. Up is definitely good, but when examining the evidence, we see a tale of two markets. Growth stocks still look ragged, as many cracked key support last week and have been extraordinarily choppy during the past month (a sign bulls and bears are fighting it out after big runs). However, the broad market is largely fine, with small- and mid-cap indexes perched near their highs and many sectors acting fine. All in all, the evidence has worsened, so we’re knocking our Market Monitor down a notch, but we’re mostly taking things on a stock-by-stock basis, ditching those that break down while targeting new buying at resilient names.

This week’s list is heavy on cyclical and re-opening plays, though chip stocks remain a bastion of resilience. Our Top Pick is Kulicke & Soffa (KLIC), which staged a long-term breakout in November, has huge growth and has been unaffected by the market’s wobbles.

Stock Name	Price	Buy Range	Loss Limit
Ameriprise Financial, Inc. (AMP)	229	218-225	200-204
Amkor Technology (AMKR)	25	23-25	19-20
Avis Budget Group (CAR)	58	53.5-56.5	46-48
Bausch Health Companies (BHC)	32	29.5-31	26.5-27.5
The Cheesecake Factory (CAKE)	55	51.5-54	45-46.5
HubSpot (HUBS)	527	490-510	430-440
Kulicke and Soffa Industries (KLIC)	52	48.5-52	41-43
Pioneer Natural Resources (PXD)	149	141-146	125-128
Shake Shack (SHAK)	118	113-118	100-103
Valmont Industries (VMI)	244	226-236	203-208

With the market now down 1.25% on the day, some of our buy-writes are reaching, or breaking, our break-even levels. If this selloff continues, we may need to exit or adjust these positions. If we adjust our buy writes, we will likely close the call we’re short and sell another call, which will further lower our cost basis.

The March flooding in Nebraska and neighboring Midwest and Great Plains states is devastating to farmers, crops and livestock. Consumers can expect prolonged food price inflation that reaches around the globe.

This is a short week as we begin the second half of 2023 with inflation down, recession fears fading, and the animal spirits of investors alive and well.

In the first half of 2023, market performance was positive and narrow, largely driven by the big tech names, and especially artificial intelligence (AI) related stocks. The Dow was up 3.8%, the S&P 500 gained 15.9%, and the tech-heavy Nasdaq was up 31.7%. We will continue to explore the world for the best value and growth stocks providing both conservative and aggressive ideas. EVs across the supply chain, resources, and emerging markets remain the focus but we have the flexibility to change course as opportunities arise.

I want to clarify a few things about our Hold and Buy ratings.

Apple (AAPL) Reports

Shares of Perpetua Resources (PPTA) are bucking the weak day for gold this Monday on news that the company has secured a $225 equity investment from JPMorgan Chase (JPM) and Agnico Eagle Mines (AEM).

Valmont Industries (VMI) Reports

Sell Credo Tech (CRDO) and Viking Holdings (VIK)

The market has strengthened again, which is great for our three open covered call positions, all of which are trading above the strike price of the call we sold. That being said, a sideways market is also fine for our volatility selling strategy, that is focused on buying the strongest stocks, while keeping the portfolio diversified.

Of all the Cabot techniques for growth investing, the one I have the hardest time explaining is our approach to market timing.

There are no ratings changes today. My stance is cautiously optimistic, and favors resisting the temptation to chase stocks. Action is going to pick up next week as we have Blackbaud (BLKB), LogMeIn (LOGM) and Mitek (MITK) reporting. I’m expecting good things from all.

Stand pat. The market has been pulling back for the past two weeks, but our market timing indicators are still bullish and most of our stocks are acting well. That said, there’s not enough evidence for us to put more money to work, so except for two small changes (we’re switching Sabre (SABR) to a Hold rating and putting Facebook (FB) back on Buy), we’ll keep our seven stocks (and a cash position of 30%) and watch how things unfold.

The market has recovered remarkably quickly from last Monday’s sharp selloff. Thus, the long bull market remains intact and I continue to recommend that you be heavily invested.

Today’s featured stock is another conservative one, with a good yield, and in an industry that’s truly unloved. And that means its valuation is dirt cheap.



As for the current portfolio, I am selling our biggest loser, DocuSign (DOCU), and downgrading Tesla (TSLA) to Hold.



Details inside.

Markets searching for direction received a boost yesterday as Tesla left earnings estimates in the dust. Quarterly profit was $3.3 billion on revenue of $18.8 billion. Despite the shutdown in China, Elon Musk said the company likely would produce more than 1.5 million vehicles in 2022, up 60% over last year.

It was a great first quarter. The S&P closed out March up 10% YTD. The index also rallied an impressive 28% from late October through the first quarter. Is there more upside ahead?

Things have been good. The Fed reiterated its intention to lower the Fed Funds rate three times this year at the March meeting. Meanwhile, inflation is way down and the economy is solid. Manufacturing data was much better than expected and the Fed raised its GDP forecast for 2024 from 1.4% to 2.4%.

The past three weeks have gone about as well as anyone could have hoped (assuming you’re a bull), with three main positive things. First and foremost, the major indexes have rallied enough to quickly flip the intermediate-term trend back up. Second, the upmove has been both broad (most stocks and sectors have rallied, with the rotation of 2021 taking a back seat for now) and coming during a spate of worrisome news (hyperinflation!). And third has been the action of leading stocks (especially growth stocks), many of which have been lighting up the sky. It’s not all peaches and cream, with earnings season set to really pick up steam, and that can always change a stock’s positioning. Thus, you shouldn’t throw caution to the wind, but you also shouldn’t ignore the shift in the evidence—we’ll keep our Market Monitor at a level 7 today but could hike it if we start seeing some bullish earnings gaps.

This week’s list has something for everyone, from small growth stocks to good-sized commodity plays that are seeing earnings boom. But we’re going with an oldie-but-goodie for our Top Pick: Netflix (NFLX), which isn’t the young buck it once was, but business is doing great and the stock is picking up steam after breaking out from a year-long base.

Stock Name	Price	Buy Range
Arch Coal (ARCH)	97	93-99
Ford Motor Co. (F)	16	15.3-16.2
KKR & Co. Inc. (KKR)	75	69.5-72
Marathon Oil (MRO)	17	16.0-16.8
monday.com Ltd. (MNDY)	383	377-387
MongoDB (MDB)	519	500-520
Netflix, Inc. (NFLX)	672	630-650
SiteOne Landscape Supply (SITE)	228	213-223
Tandem Diabetes (TNDM)	129	125-131
United Rentals, Inc. (URI)	366	358-370

Three retail stocks reported earnings.