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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.

Earnings season has arrived, and with it could be a recalibration of investor expectations for stocks broadly.

The S&P 500 Index seems reasonably priced at 19.5x estimated 2024 earnings. But nearly 30% of the index’s weight comprises Magnificent Seven stocks, whose average multiple is 33x. Estimated earnings growth rates for these Mag Seven stocks, which average 19% for each of the next five years, set a high bar. When high expectations meet less-high reality… well, investors know what can happen to stock prices. And, any wobbling in the largest stocks can send the market broadly lower. As Dennis Gartman, the legendary and now-retired writer of The Gartman Letter, frequently said, “When the generals leave the field, the rest of the army follows.”

When a band interviews a possible new hire, a common question is, “Who are your influences?” No musician was raised in a vacuum – everyone gets their musical foundations and inspirations from someone else. The Rolling Stones, for example, were heavily influenced by the Chicago blues and R&B scene including Muddy Waters and Bo Diddley. Learning someone’s influences helps the interviewer understand how a musician got to where they are and perhaps where they are headed in terms of their musical style, and provides some insight into what motivates the musician’s passion.

Editor’s Note: Due to the Fourth of July holiday next Thursday, your July issue of Cabot Value Investor will come out next Friday, July 5. Happy 4^th!

Leveraging cyclicality is a good way to squeeze more profits out of value stocks.

That was an idea put forth by Matt Warder, the newest addition to the Cabot analyst team and the successor to Bruce Kaser in Cabot Value Investor’s “sister” value investing advisory, Cabot Turnaround Letter, on the latest edition of the Street Check podcast I host with my colleague Brad Simmerman.

Good enough.

That was the resounding sentiment on Wall Street after Wednesday morning’s inflation print came in slightly better than expectations … but still stubbornly above 3% year over year. The headline CPI number for May, 3.3% year over year, was just below the 3.4% economists anticipated; the month-over-month increase (0.2%) was also a bit lighter than expected (0.3%).

The market is at all-time highs. But most stocks are undervalued.

That’s the strange but true reality in today’s Magnificent 7/AI-centric bull market. Yes, if you’ve invested in the seven largest mega-caps or a handful of artificial intelligence-related stocks (Broadcom (AVGO), Palantir (PLTR), Super Micro Computer (SMCI), Taiwan Semiconductor (TSM), etc.), you’ve done quite well. But most other sectors have lagged.

Stocks hit another pothole this week after President Trump re-escalated tariff rhetoric against China last Friday, which genuinely spooked the market for the first time in months. He has since walked back some of those comments, and the market is rebounding in an encouraging way today. But the U.S.-China trade war is definitely back in the news, so today we aim to steer clear of it by adding a new position in something that’s a little outside our normal sandbox: a foreign currency. More specifically, it’s a fund that offers exposure to a well-known European currency, and it’s up more than 12% year to date – with more potential upside ahead. The fund was recently recommended by Carl Delfeld to his Cabot Explorer audience.

Details inside.

Stocks proved their resilience once again, shaking off the U.S.-China tariff re-escalation fears and creeping back toward their early-October highs. An encouraging start to third-quarter earnings season helped, but that was mostly the banks. The real test will come in the next couple weeks, when most of the big tech companies report. So it’s still choppy waters out there. With that in mind, today we add another fairly low-risk play to the Stock of the Week portfolio in the form of a healthcare REIT that offers a decent yield. It’s a stock Tom Hutchinson just recommended to his Cabot Dividend Investor audience.

Details inside.

It’s that time of the year when economists and market mavens spill an abundance of ink making year-ahead stock forecasts and boom/bust warnings. As there seems to be an abnormal amount of recession predictions for the year ahead—including a few from some reputable sources—I think we should examine the question: Will the U.S. witness a major economic shock in 2026?

In view of the alarming number of news headlines that point to a weakening economy (at least in some quarters of it), it may seem surprising that the normally defensive consumer staple stocks are underperforming.

Normally, the staples are viewed by investors as something of a safe haven during periods of economic uncertainty, providing as they do essential goods like food and household products that are purchased even in tough times. But the present environment is proving to be an exception to that rule of thumb.

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Dollar Tree (DLTR), Intel (INTC), Kenvue (KVUE), Pan American Silver (PAAS), Paramount Global (PARA), UiPath (PATH) and SLB Ltd. (SLB).

Dollar Tree (DLTR) had a big week in the wake of earnings, hitting a new high for the year to date.

Our readers are in our thoughts every day as we work to make our advisories readable and useful.

As more hedge funds gravitate to exchange traded funds over individual stocks, here are the six best ETFs today as measured by relative performance.

Most retailers have suffered greatly during the recession, but one is making waves with newly frugal shoppers. The company is Aeropostale (ARO) and it was featured in Cabot Top Ten Report this Monday.

A look at Lululemon, Netflix and Priceline earlier this year and now.

Is the market’s recent bounce a true breakout or another false start? The following stock charts should give us some insight.

My career at Cabot began back in June 1999, just before the internet bubble really revved up in October. That was a time of great divergences—the broad market struggled all the way from the mini-bear market bottom of October 1998 right through the top in March 2000. Today I see a similar dichotomy in the market—many “old” leaders are struggling while “new” growth concepts are finding support.