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If there was a dominant investment theme for the Cabot Turnaround Letter in 2025, it was the focus on defensiveness, in which we showed a penchant for companies in the consumer staples arena. This, I believe, was—and still is, from a long-term perspective—justified in view of the many headwinds faced by the U.S. economy over the last 12 months.

Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.

Housekeeping: We’re sending out this update a day ahead of time, given tomorrow’s holiday. We hope you have a great end to the holiday season and, of course, a healthy and prosperous new year. Our office will be open Friday, and we’ll be back at it in full next week. Cheers!

WHAT TO DO NOW: Stay flexible. The market’s overall evidence is positive but not powerful, though growth stocks continue to lag, with our growth measures (such as the Growth Tides and Aggression Index) neutral-ish here. We expect volatility over the next few days as the calendar flips, which could provide some opportunities. For now, with most names we own or watch marking time, we’ll hold what we have and see what comes as we hit January. We have no changes tonight.

Housekeeping: There’s no Top Ten issue today, as it’s the second of our two weeks “off” all year—though we are sending this Movers & Shakers update in its place so you’re up to date on our latest thoughts. We’ll likely have another (albeit briefer) M&S this Friday (January 2) and then get back to our regular schedule next Monday (January 5), with your next issue of Top Ten. Most important—we hope you and your family have a happy, healthy and prosperous new year.

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The market remains largely in the same position it has for the past two or three weeks—positive, but it depends where you look, with many of the popular AI and other stocks still hacking around (though most are doing so within overall uptrends), while other areas are a bit more vibrant.

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Uncertainty in the market has soared. The situation in Iran significantly increases the near-term risk to stock prices.

The earnings catalyst has passed. Market indexes are near the high. In this environment, a very unpredictable situation in the Middle East could tip the balance. Of course, it’s impossible to know what will ultimately happen in Iran.

Tracking bullish option activity is part of how I’ve built a successful career trading options—it’s my bread and butter. Here’s how I do it.

There is a huge increase in uncertainty with the market near the high. Although stocks were mostly higher by midday on Monday, the situation in Iran adds another degree of risk.

The current situation makes this an even better time to sell covered calls on stocks near the recent high. After a huge YTD rally in several previously underperforming sectors, a few stocks are generating very high-priced call premiums. An unpredictable market with stocks near the high after the strongest rally in years is the ideal time to turn the recent market successes into high income.

The close of the month of February, which was extremely volatile day-to-day, was another week in the red as a mix of AI-driven growth fears and geopolitical tension put pressure on broader markets. Traders sold heavily into tech and financials, keeping sentiment cautious. By week’s end the S&P 500 had slid 0.4%, the Dow had lost 1.3%, the Nasdaq had declined by 1% and the Russell 2000 had fallen by 1.2%.

The close of the month of February, which was extremely volatile day-to-day, was another week in the red as a mix of AI-driven growth fears and geopolitical tension put pressure on broader markets. Traders sold heavily into tech and financials, keeping sentiment cautious. By week’s end, the S&P 500 had slid 0.4%, the Dow had lost 1.3%, the Nasdaq had declined by 1% and the Russell 2000 had fallen by 1.2%.

The market has been full of yellow flags for a while, and with the Iran attacks (and uncertainty) going on, the sellers continue to lean on much of the market, including growth stocks. To be fair, the market has bent but not broken--our Cabot Tides are on the fence and many recent breakouts are pulling back normally so far. Still, given the poor evidence for growth stocks, we’re sticking with a cautious stance (we’re selling one name tonight, giving us more than 60% in cash) and think the market is near a make-or-break period--either support holds and the market can rally briskly (possibly on an Iran resolution), or support cracks and we enter a real correction. We’ll take it as it comes, but right here we continue to stay close to shore.

The Iran crisis sparked short-term panic in the market and raised volatility, but the long-term effects are likely to be subdued, so it’s a good time to hunt for ETF bargains.

The close of the month of February, which was extremely volatile day-to-day, was another week in the red as a mix of AI-driven growth fears and geopolitical tension put pressure on broader markets. Traders sold heavily into tech and financials, keeping sentiment cautious. By week’s end the S&P 500 had slid 0.4%, the Dow had lost 1.3%, the Nasdaq had declined by 1% and the Russell 2000 had fallen by 1.2%.