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Anybody that’s done a drive with kids has faced this question more times than they’d like to recall. We’re facing the same question now with respect to the market’s retreat as we look for some stability.

Enjoy the current strength but be aware of the environment we’re in, and why. Accept that we could see a significant retreat in the prices of many of our stocks in the near term, but that the fundamental reasons behind their current strength should persist despite a retreat, and drive them higher over the coming years.

As we move into the final weeks of 2020, I’m inclined to become a little more cautious with our buy ratings because, well, stocks have been en fuego! On that note, several stocks move from buy to hold today.

This week has been all about earnings, even though we’ve only heard from one company in our portfolio. That company is Repligen (RGEN), which reported this morning (the stock is reacting well). Notes on that report are below.

So much for the technology selloff. The sector dipped its toe into correction territory and has roared back with a vengeance.

In the market, instead of building on your strengths, the best way to improve results is to strengthen your weaknesses. If you’re very good at identifying low-risk buy points, for instance, that’s great … but there’s no reason to continue honing that skill. Instead, focus on identifying your biggest weakness—say, your ability to time the market—and build up that part of your game.

Today’s note includes earnings updates on Duluth Holdings (DLTH) and Signet Jewelers (SIG), the podcast and the Catalyst Report.

The broad market strengthened over the past week, led by a rebound in tech stocks. Other leading sectors included real estate, energy and, for a second week, materials. Utilities also rebounded, as interest rates pulled back. The only industry group that hasn’t advanced over the past five days are the financial stocks.

The Japanese phrase, hara hachi bu, translates into something like “belly 80 percent full,” or “eat until you are eight parts full.”

Prepare yourself for more ups and downs in our medtech & biotech stocks if this debate heats up. I’m not planning to step out of the space since I think this will pass and we can still do quite well with these types of stocks.

Stocks pulled back yesterday, but the market’s intermediate-term trend remains up. Stay the course, and resist overreacting to the oscillations.

Good news. The U.S. economy is delivering Goldilocks-like growth—strong but not too strong—and the stock market is back in a good mood. Inflation rose 0.2% in February, meeting expectations but down a notch from last month’s 0.5% rate. And Friday’s jobs report showed that job creation remains robust, but wages are still increasing slowly (up 0.1% in February). The report pushed the yield on the 10-year treasury to within 0.06 percentage points of 3%, but it stopped just shy of breaking through.

I noted last week that the outperformance in growth stocks was contributing to some underperformance in our portfolio. That situation has now been flipped on its head. Growth stocks started lagging in the middle of last week, and for the week, the S&P 500 lost 1.24%, the Dow dropped 1.54% and the Nasdaq fell by 1.04%. Utilities and REITs—year-to-date laggards—were the week’s best-performing sectors.

In my view, the best strategy for overseas markets is to play the trends with a contrarian value approach. For example, the Hang Seng China Enterprises index, a closely followed gauge of large Chinese listings in Hong Kong, has fallen about 11% so far this month after losing 14% last year. Foreign investors have sold about 90% of the $33 billion worth of Chinese stocks that they had purchased earlier in 2023 and have continued selling this year.

So today, we go against the grain on China.

The S&P 500 delivered an impressive 16% return in the first half. Can the good times continue in the second half?

A big part of the latest surge higher has been the artificial intelligence (AI) excitement. After Nvidia (NVDA) blew away expectations citing far greater demand for AI technology, the market-leading tech sector caught fire. But returns were impressive even before then as the market is sensing a soft landing.

Let the good times roll. Inflation is collapsing. The Fed is almost done hiking rates and likely to turn distinctively more dovish in the 2024 election year. There is no recession and no signs of recession. Stocks are thriving. And it’s summer.

This week, we comment on earnings from Walgreens Boots Alliance (WBA). We also include the Catalyst Report and a summary of the July edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

This month we are going with a small industrial company that is showing how consistent focus on operational improvement can pay dividends.

Once thought of as a highly cyclical company with management that tended to drop the ball, execution has improved dramatically. In 2022 revenue was up 14% and EPS was up 41%.

With exposure to megatrends like infrastructure and global electrification, I see more upside ahead.

Enjoy!