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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

Earnings season has seen some huge reactions, and this week brought the drama to our portfolio. There have been sharp selloffs, but we’re not going to overreact. A few rating changes to the portfolio today, but overall we’re in good shape.

The market and most Explorer positions struggled a bit this week except Conoco (COP), which is benefitting from crude oil hitting 2023 highs. Consumers and businesses are looking forward to the Fed ending interest rate increases as the inflation fight continues. Food inflation slowed to about 3% year-over-year in August, down from a troubling 13% a year earlier. Those topics, plus Japan, China and the electric vehicle arms race, in today’s Cabot Explorer update.

Our portfolio advanced this week led by India’s ICICI (IBN), which was up 19% on the back of a tax cut and prospects for higher growth.

One of the reasons I love the stock market is that it’s such a battle of the mind. Of course, few pundits or analysts will tell you that--to them, it’s all about number crunching, research, valuation and industry analysis. And all of those are important. But when you get down to it, with money on the line, buying and selling stocks becomes emotional. Really, though, it’s how you handle those emotions that will go a long way toward determining how much money you make and keep in the stock market. The investors that shoot from the hip and react to every wiggle in the market generally do poorly. Those that have a well thought out plan are usually the ones that excel.

Today, the USPS is the third-largest employer in the United States, after the Department of Defense and Wal-Mart. It’s also the largest civilian operator of motor vehicles. Considering its great size, it’s done a very good job of adapting to changing times. But the growing operating losses (just as at GM) warn us that if bigger changes are not made, the USPS will be next in line for a government bailout. And I think Americans have had enough of bailouts.

Few things are more enduring than America’s love of a good hamburger. Indeed, the iconic sandwich is so much a part of the country’s pop cultural heritage that, according to numerous opinion polls, it’s one of the first things foreigners mention when asked to name the most American symbol they can think of.

Small caps made no net new progress over the past week but we definitely saw some movement under the surface. This week we’re pulling back just a little given some softening in momentum stocks. A few positions were moved to hold, but for now we’re not cutting anything from the portfolio.

Commodity stocks have been (and remain) the leaders of the market’s advance, but interestingly, the tech-heavy Nasdaq has been outperforming all other major indexes for the past few weeks. Now, finally, some individual tech stocks are beginning to pop up—there are two chip stocks and one hard disk drive maker in this week’s Top Ten. We’re not ready to tell you to move a ton of money into technology sectors, but it’s a sign the rally is broadening out. Elsewhere in this week’s list, there are the usual suspects of oil, natural gas, steel and alternative energy. Our favorite of the week is Marvell Technology (MRVL), a chip firm that gapped up in a big way after its earnings announcement last Friday. We think you could nibble around here, although a drop of a point or two isn’t out of the question.

Stock Name	Price	Buy Range	Loss Limit
AMSC (AMSC)	0.00	30-33	-
CMI (CMI)	0.00	67-71	-
EAC (EAC)	0.00	65-70	-
GTI (GTI)	0.00	24-26	-
HK (HK)	0.00	27-29	-
MA (MA)	0.00	295-305	-
MRVL (MRVL)	0.00	15-17	-
NETL (NETL)	0.00	34-36	-
PCX (PCX)	0.00	100-110	-
WDC (WDC)	0.00	34-36	-

The market continues to be messy, but we’re going to take a partial swing at a profitable software company playing in a big, growth market – cloud services.

This company is like a smaller version of Amazon Web Services and Microsoft Azure. But without all the other parts of those much, much larger companies.



We may be a bit early. But we’ll manage that risk by taking a half position in a company that’s likely to grow above 30% for years and is very profitable.


Enjoy!

Markets are hoping for some sort of breakthrough from the Xi-Trump meeting on the sidelines of the G-20 meetings in Japan over the weekend. Most likely there will be some positive face-saving news with most key issues kicked down the road. The Chinese want no new tariffs and Huawei sanctions pulled back. Emerging market signal is still positive and we remain cautiously optimistic.

A bubble in shopping malls is forming, and hedge funders are plotting their next big short. I’d rather take the other side, and find the best stocks to buy.

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This week, we review earnings reports from Capital One Financial (COF), General Electric (GE), Nokia (NOK), Western Digital (WDC) and Xerox Holdings (XRX).

Next week, we anticipate earnings from Polaris (PII) and Janus Henderson Group (JHG). Please know that some reporting dates are estimated based on the companies’ reporting history, others are confirmed dates. As always, it’s likely that some companies will report on a day different from what we anticipate.