Search

In the September issue of Cabot Early Opportunities, we continue to try and thread the needle of this bear market, selecting a few potential opportunities to buy while adding others to our Watch List.
This month’s issue features a couple of old friends that are shaping up again, plucks one healthy stock off the Watch List and digs into two fresh names that seem to have the wind at their backs.


Enjoy!

So far, October looks better than September for the market. After falling 4.8% in September, the worst month since the pandemic recovery began, the S&P 500 is up slightly for October.

We’ve been writing for months that the market’s next big move was likely up, and it now looks like that upmove could be underway, with the major indexes in uptrends, our market timing indicators looking good and little selling pressure recently despite a good run. Short-term, a dip wouldn’t be shocking to see, but the path of least resistance finally appears to be up.

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.

A week ago, the main issue with the market seemed to be earnings and if the reports would save or doom the rally. But we have since been completely blindsided by fears of recession.


While earnings have so far not been impressive, the main event has suddenly become recession. Last week, the most recent jobs report was far worse than expected. There were numbers within that report that have reliably portended every recession since the 1970s. As a result, the stock market plunged, and interest rates crashed. The benchmark 10-year Treasury rate moved below 4% and Wall Street has assigned a 95% chance of the Fed cutting the Fed Funds rate by 50 basis points in September.

The market continues to hover near the all-time high. The S&P 500 finished the first half of the year up 14.5%. That’s a not-too-shabby 29% annual pace.

As I mentioned earlier, I believe it is unlikely that the S&P will finish the year up 29%. That means market returns must at least flatten out somewhat going forward. It’s also true that the technology rally has petered out in the last few weeks.

This market rally keeps forging on no matter what. Technology cooled off but, no problem, other sectors are picking up the slack.

Interest rates have likely peaked. The chances of a Fed rate cut before the end of the year have increased. And the economy is still solid. Sectors rotate, headlines come and go, but as long as the main ingredients of future lower rates and a still-decent economy prevail, the market should be good.

First and foremost, all of us here at Cabot wish you and your family a Merry Christmas, Happy Holidays and a prosperous New Year. Our offices will close early today and be closed tomorrow, but we’ll be back at it next week.

As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.

The S&P 500 soared 46% from the March bottom in about 11 weeks, the fastest such rise in history. It couldn’t keep that up forever and it was bound to falter eventually.

Today’s update is brief, but it does include a couple of important observations about the behavior of cannabis stocks in recent weeks, as well as updates on all the portfolio stocks.

Which brings us to today. With last week’s powerful market upmove - one of the best of the year, thanks partly to Mr. Bernanke’s half-point rate cut on Tuesday - we believe we’ve kicked off the next stage of this bull market … a stage that figures to be very powerful. Why so powerful? Because many unique indicators we follow are giving us a bright green light. Here are some…

There’s no getting around it: Growth stocks have crashed, so what do we do now? We can start by looking at these areas of the market that are still strong.

Investors continue to cycle in and out of different sectors, and biotech stocks are next in line to benefit from that sector rotation.

Ahead of next week’s March issue, I’m going to make a few changes to our portfolio today.

The Financial Times reported this morning that this portfolio stock was in talks, in late December, to possibly be acquired by AIG, Prudential Financial Group or Prudential Financial.

One of our portfolio stocks moves to Hold

According to Gallup, having enough money for retirement is the most common financial concern in the U.S. In the 2014 survey, Gallup found that 59% of Americans are worried about not having enough money for retirement. That’s actually down from a few years ago, when over 66% of Americans were concerned about funding their retirements.

This week’s update includes our comments on earnings from Walgreens Boots Alliance (WBA) and Wells Fargo & Company (WFC) as well as commentary on several stocks.