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Current Market Outlook


Impeachment talk stole the headlines last week, and China trade issues remain one of the chief economic concerns, but overall, the market remains healthy, with all major indexes in uptrends and most just a couple of weeks off their recent highs. Nevertheless, making money remains difficult, as the forces of rotation have been sending old leaders to the locker room and trotting out fresher new leaders to take their place. This is actually good for the health of the bull market, but it does make investing more difficult, so you should continue to tread carefully, in particular by choosing low-risk entry points and being ruthless at cutting loose your worst performers. As for the market monitor, we’ll stand pat this week, as the flurry of selling late last week has created some decent entry points.

This week’s list includes a great variety of stocks, and our Top Pick is a lower-risk insurance stock, Arthur J. Gallagher (AJG), which has been building a base over the past couple of months and looking ripe to resume its uptrend.

Stock Name	Price	Buy Range	Loss Limit
Arthur J. Gallagher (AJG)	89.27	87-91	84-86
Chubb Group (CB)	153.34	156-164	150-152
Entegris (ENTG)	48.08	46-48	41-42
Garmin (GRMN)	97.45	81-87	77-78
Insulet (PODD)	175.69	154-168	145-147
Jabil Inc. (JBL)	41.50	34-36	31-32
MasTec, Inc. (MTZ)	66.65	62-65	59-61
Synnex Corp. (SNX)	129.70	110-113	105-108
Taylor Morrison Home (TMHC)	27.51	24-26	22-23
Weight Watchers International, Inc. (WW)	35.33	35-38	30-32

In the December Issue of Cabot Early Opportunities, we continue to lean into the market’s bullish trend. We dig into five modest growth companies with exposure to AI, social media/advertising, footwear, HR software and the exciting world of road paving.

As always, there’s something for everybody!

Current Market Outlook


Last week had some promising moments, but by week’s end, the sellers had pushed the major indexes back down on the week. At this point, the bears are running wild, as most of the major indexes remain in wide trading ranges. At the very least, the intermediate-term trend is sideways-to-down, and the broad market is in poor health, with hundreds of stocks hitting new lows on a daily basis. It’s OK to hold some resilient performers, but we urge a cautious stance, with plenty of cash on the sideline and limiting new buying to just small positions of resilient stocks.

This week’s list has some solid ideas, though there are no broad trends apparent—mainly company-specific situations that have attracted some buyers. Our Top Pick is Alkermes (ALKS), a speculative biotech that could swim against the tide thanks to the FDA’s recent approval for one of its high-potential drugs.

Stock Name	Price	Buy Range	Loss Limit
Red Hat (RHT)	0.00	79-81	74-75
Pure Storage (PSTG)	25.64	15-16.5	13.5-14
NetEase, Inc. (NTES)	0.00	170-176	160-162
Ligand Pharmaceuticals (LGND)	267.14	103-107	96-97
Intra-Cellular Therapies (ITCI)	0.00	50-55	44-46
FLSR (FLSR)	0.00	62-65	56-58
Extra Space Storage (EXR)	0.00	84-87	80-81
Amazon.com (AMZN)	2.00	650-667	618-622
Alkermes (ALKS)	0.00	75-78	68-69
Adobe Inc. (ADBE)	315.23	89-92	85-86

After a few weeks of solid action that eased most worries, the latest shenanigans in Iraq have reminded investors that the market is a two-way street. Not that the damage has been severe—stocks have generally eased normally since Iraq grabbed the headlines last Thursday—but we’re viewing this as the rally’s first test. If dips in the indexes and individual stocks come on generally tame volume and find support, it will be highly bullish. If not … well, we’ll deal with that if we see it. Right now, the evidence remains clearly bullish, and while the bulls aren’t running wild, many stocks are making solid progress.

This week’s list has a bunch of great stories, as well as a nice mix of newer and older names. Our Top Pick is Restoration Hardware (RH), which is going about business in a unique way, leading to outstanding results. The stock is getting going after a multi-month rest.

Stock Name	Price	Buy Range	Loss Limit
RH Inc. (RH)	252.93	79-84	72-73
VeriFone Systems, Inc. (PAY)	0.00	35-36	32-33
Netflix, Inc. (NFLX)	423.92	410-430	370-380
Health Net (HNT)	0.00	38.5-40	35-36
GT Advanced Technologies (GTAT)	0.00	18-19	15-16
Keurig Green Mountain (GMCR)	0.00	115-121	105-107
Eagle Materials Inc. (EXP)	0.00	90-94	84-85
Con-way (CNW)	0.00	46.5-48.5	43.5-44
Charter Communications (CHTR)	0.00	144-147	134-135
Baidu (BIDU)	0.00	170-175	158-160

Today’s Cabot Small-Cap Confidential candidate runs an online marketplace for a different type of market where over $120 billion is spent each year. The trend is strong, and it’s still early days. All the details are inside the June Issue of Cabot Small-Cap Confidential.

I’m adding a 31-year dividend payer to the Safe Income Tier, and cover all our stocks that have reported earnings so far. You’ll also find some important information on REITs at the end of the issue which you should find valuable if you bought last month’s High Yield Tier addition.

The Fed is on the precipice of cutting interest rates for the first time in years; when that happens, homebuilder stocks tend to benefit first. But that’s not the only reason to be bullish on the sector. Homebuilders have changed the way they do business in recent years to become more like car makers, only with greater upside and higher internal rates of return. With both those short- and long-term winds at their sails, homebuilder stocks are a good – and still undervalued – bet. And today, we add a big name in the space that has the best combination of growth and value.

Enjoy!

Is the worst of this late-winter selloff over? Or are there lower depths still to plumb? A lot may depend on what the Fed says this week. Or the next bit of tariff news. Or who knows what. There’s a lot of uncertainty out there. And the market hates uncertainty. But after a month of almost nothing but selling, there are some encouraging signs of life.

Still, the wise move is to stick to safety, so this week we add a safe dividend stock that’s in about as reliable a business as there is: trash collection. It’s a new recommendation from Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

Trim your sails. The market’s recent slide has cracked the intermediate-term uptrend, and while the overall bull market is still intact, chances are the market is going to need some time to correct and consolidate going forward.

The general market picture continues to look bright. All three of our key market timing indicators remain bullish—both the market’s intermediate- and longer-term trends are pointed up, and the broad market is in great shape, with the Two-Second Indicator continuing to record fewer than 20 new lows day after day.

Explorer positions had an up week as the S&P 500 has begun a turnaround from bear market territory and is now down “only” about 13% for the year. This means it is up around 6% since hitting its recent low on May 19 as the Fed has softened its tone and China tries to get growth going.

Electric vehicle sales are set to more than triple to just over 20 million in 2025, according to BloombergNEF. This is up from a previous estimate of 15 million.

Some of you might have been a bit alarmed at the message attached to last week’s issue that the next issue will be out January 7, 2021. But today we have an update and rest assured, I’ll be following the Explorer portfolio next week and will send an alert if anything unusual happens. I will also have another update and some portfolio changes the following week.

Markets are showing great resiliency as the S&P 500 nears a record and stocks have risen all but one day in August. Optimism about an eventual stimulus bill and the prospect of declining Covid-19 cases and a vaccine are still supporting the economy and markets.

The Cabot Global Stocks Explorer portfolio had another good week, with four stocks all making major moves.

The S&P 500 is at new all time highs as I write this. We have a market that wants to go higher, but it just keeps getting interrupted with negative headlines. It seems like we can’t get through a week without bad trade news or signs of a weakening global economy that prevents the market from taking off.

You may be the kind of person who automatically genuflects when the name of Warren Buffett is mentioned, or not. My opinion of him has varied over the years. In my youth, I just couldn’t understand why someone who obviously doesn’t care about money would devote his life to making more of it. These days, knowing how little he is leaving to his family members and how little he even cares about which philanthropies will benefit from his wealth, I think I understand him a little better.

One question we’ve gotten a few times from readers is “I’m new to investing. How do I get started managing my money for the future?” It’s a basic question, and you’ll find answers all over the Internet, but ours has a little twist. Today’s Cabot Wealth Advisory will attempt to answer that question, so if you’re just starting out or if you want to take the time to regroup, especially in light of the recent market decline, this issue is for you. It’s never too late to start preparing, saving and investing for your future.

The Cabot Global Stocks Explorer portfolio is doing well in 2019 and a number of recommendations have recently surged on the strength of impressive earnings and an improving environment for emerging and international stocks.

I’m in Amish country this week so the Cabot Explorer issue will be briefer than usual today. Markets are facing a 5% dilemma. The benchmark Treasury yield closed just above 4.9%, a fresh 16-year high.

Third-quarter GDP estimated growth may be above 5%, signaling that inflationary expectations are still strong.

The market will likely turn broadly positive when expectations are that interest rate hikes are over – and lower rates may be around the corner.

The Cabot Market Letter has been timing the market for over 37 years, and it is darned good at it. Even the Hulbert Financial Digest has noticed, giving the Letter an attaboy for its success in getting out of bear markets and back into bull runs. There are reasons for the divergence in the opinions of Cabot and the market commentators, and they don’t require that one or the other has to be wrong. It’s a good illustration of the power of the individual to grab victory from the jaws of defeat. Here’s how it works.