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Volatility is back, with the VIX spiking above 20 for the first time since early August and above 21 for the first time since June.

Tariffs are the reason. Specifically, escalating tariff rhetoric between the U.S. and China, which spooked the market into its worst one-day selloff since April last Friday, and has prompted wild intraday swings every trading session since. So far, the damage to the major indexes has been fairly limited (the S&P 500 is less than 2% off its highs, as of this writing), but under the surface, a few yellow flags have emerged, including the number of 52-week lows among NYSE-listed stocks topping the magic number of 40 (it’s up to 63) that typically precludes a more pronounced market pullback. We’ll see how much the just-underway third-quarter earnings season can act as a yin to tariffs’ yang and hopefully provide a relatively high floor for stocks in the coming weeks. As I wrote in this space last week, that may depend on whether companies can cross the relatively high bar of 8% earnings estimates.

The market is getting a little frothy.

The S&P 500 is up 5.5% in the five weeks since election day, though that’s a historically normal bump following an election. The bull/bear ratio topped 3.9 last week – just shy of the 4.0 “danger zone” that often precedes pullbacks, though it’s not the first time it’s been this high in recent months. And Bitcoin, an asset that thrives in bull markets and typically tops right before a major pullback, just crossed the $100,000 threshold for the first time and has more than doubled in the last three months.

In this month’s issue of Cabot Early Opportunities we serve up a diverse group of stocks with exposure to vastly different areas of the economy.

There’s some software and biotech, and plenty of IPOs, but also a few ways to play rising strength in cyclical stocks.

Enjoy!

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is a speculative suggestion—a small company with great potential to grow as the market for electric vehicle charging booms.



As for the current portfolio, most of our stocks look good, and many are hitting new highs, so I’m downgrading three to hold because they are ripe for correction.



Lastly, a reminder that because of the Labor Day holiday, next week’s issue will be published on Tuesday, September 7.



Details inside.

This week, financial markets bring us earnings reports from Adobe and FedEx (and possibly Carnival), and a speech by Fed Chairwoman Janet Yellen.

Loading your portfolio with high-flying growth stocks and steady dividend payers can help you generate market-beating returns, but there are also unique, company-specific events that can quickly turn stocks into big winners. This month, we’ll be taking a closer look at stock spin-offs, special dividends, IPOs, mergers, buyouts and more “special situations” that can give you an investing edge.

Stocks finally took on some water last week, though the damage was minimal. Under the surface, there are a few more cracks, with the number of stocks hitting 52-week lows on the rise. Still, there’s no cause for concern yet. Just in case there is a more extended pullback in the offing, however, today we add a “boring” insurance play, but one that pays a high dividend and whose share price has been on steady uptick for the last couple months. It’s a recommendation from Tom Hutchinson to his Cabot Dividend Investor readers.

Details inside.

Fourth-quarter earnings season is underway, and while expectations are high at an estimated 11.9% average year-over-year growth among S&P 500 companies, according to data collected by Factset, the actual numbers probably won’t matter much to the market’s short- and intermediate-term direction.

Ignore inflation numbers too. CPI and PPI – this week’s dual reports of the December results – were encouragingly cooler than expected. But in the end, what really matters is how they impact the Fed’s decision-making, which we probably won’t know until at least the end of the month.

Stocks are finally showing signs of life. After a miserable six-week stretch, stocks – with an assist from cooler inflation numbers – appear to be getting in gear. How long the new rally will last may depend on things like Q4 earnings, the early days of Donald Trump’s second term, and what Jerome Powell says next week. But for now, let’s strike while the iron is hot, or at least warm, and add a growth stock whose name you might recognize since so many people use their platform these days. It’s a new recommendation from Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

What a difference a week makes!

Early last week, things were looking pretty gloomy for the market, with stocks on a six-week losing streak dating back to early December and interest rates, as measured by the 10-year Treasury yield, stretching to 14-month highs. More than 300 stocks on the New York Stock Exchange and Nasdaq were trading at 52-week lows.

There are a lot of things the stock market can handle.

In 2024 alone, stocks advanced more than 20% despite two major overseas wars raging, high interest rates, stubborn inflation, escalating unemployment, a toss-up presidential election in which one of the candidates changed midsummer, tepid consumer confidence, etc. That’s because, aside from Kamala Harris replacing Joe Biden as the Democratic candidate less than four months before the election, most of these potential headwinds were known. What Wall Street fears most is the unknown. And that’s why DeepSeek rattled markets on Monday.

It is a late-summer/early-fall rite of passage on Wall Street: After Labor Day, the institutional investors and hedge fund types return from their summer vacation homes in the Hamptons and immediately start selling. They sell out of their weakest positions that have been neglected and left to rot during the summer months, in the hopes of beefing up their quarterly returns before October brings a new quarter. The result is that September is, far and away, the worst month for stocks, with an average decline of -1.17% in the S&P 500 dating all the way back to 1928. The next-worst month is February, with a mere -0.14% decline.

That’s the bad news as we enter September. Here’s the good news.

There are only 13 trading days left in the calendar year. This means we are entering what is basically a reality distortion field … in which the closer we get to year’s end, the more that calendar-driven technical motivations, rather than valuations and fundamentals, drive share prices. These motivations create artificial selling pressure that can drive already-weak shares down even further.

The introduction features a few international trade issues, including disputes about international court systems within NAFTA and CETA, and a potential sunset clause in NAFTA. I’d go on to itemize which steel companies might benefit or be harmed by the latest round of steel tariffs, but I frankly believe that last week’s newest steel tariffs are simply a temporary negotiating ploy pertaining to NAFTA. Therefore, I thought it might be more useful to discuss what’s currently happening with NAFTA negotiations.

Current Market Outlook


Last week’s issue was titled “Next Few Days Should be Key,” and we think they were—in a bullish way. The market’s strong snapback to new highs (in the indexes and many leaders) made the prior dip look like a shakeout, which generally bodes well. That said, the action didn’t erase all the yellow flags out there, either, as sentiment is bubbly, many stocks are extended in time and price and, most important, tons of names are set to report earnings in the days ahead, which will be key for the intermediate term. Don’t get us wrong, we’re encouraged, but we still think it’s best to pick your spots on the buy side and trail your stops (and book some partial profits here and there) as opportunities arise. We’ll move our Market Monitor back up a notch and see how things go from here.

This week’s list is brimming with strong names, including more than a few that reacted well to earnings last week. For our Top Pick, we’ll go with Dynatrace (DT), which has just gotten going from a multi-month structure and looks ready for a sustained advance.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	602	585-605	525-540
Bill.com Holdings (BILL)	179	170-177	150-154
Canada Goose Holdings (GOOS)	42	40-42.5	35.5-37
Dynatrace (DT)	56	53-56	47.5-49
PayPal (PYPL)	282	267-277	240-246
Pinduoduo (PDD)	188	178-186	160-164
SM Energy (SM)	12	10-11	8-8.8
Snap Inc. (SNAP)	64	60.5-63.5	53-54.5
Tapestry, Inc. (TPR)	39	35-37	31.5-33
Zendesk (ZEN)	156	150-155	138-141

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