Europe’s stock market has underperformed the U.S. by the most in almost three decades.

While the S&P 500 index is up about 25% so far this year to record highs, Europe’s benchmark Stoxx 600 is only up 5%. That underperformance in returns is the biggest since 1995, according to Bloomberg. The other side of the coin is that the S&P 500 is now trading at 22.5 times forward earnings and is at a record high 70% premium to the Stoxx 600. The European Union (EU) bloc is the world’s third-largest economy, with a market of 450 million consumers, and controls the world’s second-most-used currency, the euro.

So today, we go to Europe (literally!) to add a new stock to the Explorer portfolio that looks poised to outperform.

A broad-based Republican victory in the election is spurring a sharp rally on Wall Street as investors bank on investor-friendly policies.


Bitcoin, the U.S. dollar, and gold also rose. It was reported that the gold reserves of Italy and France have risen in value by about $100 billion in the last two years. It is unusual historically for gold and the U.S. dollar to rise in tandem. Gold’s steady rise is also unusual given that traders would normally take profits along the way. U.S. economic sanctions have encouraged many to move into gold beyond the long reach of the U.S. government.



It is amazing how much money is being spent on politics. More than 11,000 political groups spent almost $15 billion to influence the election. Of course, this amount seems small weighed against a global economy of about $100 trillion, with the U.S. accounting for about $23 trillion (and about 35% of global debt).



It will be very interesting who gets the top economic policy posts and the GOP strategy going forward.

As I mentioned recently, I’m now in Europe looking for intelligence and ideas.

This week I’m in Madrid and visited the stock exchange (bourse) and met with some local brokers to try to get a feel for the market and region. Like brokers always are, they were bullish on stocks and especially gold. One stock we discussed which I have followed from time to time is Banco Santander (SAN). It is in a nice uptrend and still well below book value, but I need to do some research and reach out to some friends who previously worked for Santander to get their views before considering a recommendation.

Instead, today I have a new gold stock recommendation.

JPMorgan (JPM) is due to report results Friday, kicking off bank earnings season. Lately, the market seems to be more focused on earnings than Fed interest rates, and this is a good thing.

As markets move towards the “Great Rebalance”, looking to diversify portfolios with different asset classes and international stocks, the Explorer and I are headed to Europe, Asia, and Latin America during the next year. But today, stick to the U.S. and add a very familiar face to the portfolio.

The MSCI World Index now has a remarkable 72% market value weighting in U.S. stocks.

In other words, 72% of the market value of stocks trading around the world represent companies headquartered in America.

This begs the question: Should investors be this concentrated in a single market?

Lower inflation numbers yesterday made interest rate cuts inevitable which moved the market, led by Nvidia (NVDA), which surged 8%. I intended to recommend Nvidia at a price of 100 so I will patiently watch this bellwether stock closely.

To be a good, patient and calculating investor, one needs to do two things at once: Be aware of big macro issues and trends and focus attention on micro issues. That is, closely watch specific companies and stocks, especially smaller, micro stocks offering the biggest upside and risk demanding closer attention.

Today, we recommend a fund that does just that - with a history of remarkable outperformance.

While there are a lot of healthy signs of growth out there, stocks that do not meet high expectations are being punished.

Super Micro Computer (SMCI) was off 29% this past week after some allegations of faulty accounting by short sellers was followed by the company reporting yesterday that it was postponing filing of its annual report with the SEC to assess “internal controls over financial reporting.”

Given the uncertainty, we have little choice but to sell the stock. We took some profits earlier this year, and the stock is still up 43% so far this year. My guess is that we will be back to Super Micro at some point, and I will watch this stock carefully.

Change is constant and inevitable, but one thing that hasn’t changed for the past three centuries: America’s love affair with coffee. Coffee is a commodity that has been prized since the 18^th century in America. Many believe it is the fuel that drives America’s economic engine.

So today, we add a fast-growing American coffee company to the Explorer portfolio. It might not be the name you’re expecting...

Explorer stocks gained ground this week as market sentiment improved along with the odds of a Fed rate cut this fall.

I’ve been encouraging you to lighten up on some of the Magnificent Seven stocks over the last month or so. In just the last two weeks, these stocks have lost over $1.6 trillion in market value as market enthusiasm has waned and insiders have sold some stock.

What’s behind this trend?

Here are three possible reasons why big tech is facing a tough market.

Markets and especially the tech-heavy Nasdaq index led by semiconductor stocks sold off yesterday. Reasons include perceived rising protectionist and isolationist pressures in both Europe and America. Meanwhile, small-cap stocks continue to rally, and some overseas markets were also up.

As one would expect, our tech stocks pulled back somewhat while all three of our dominator stocks gained ground this week.

Explorer stocks had a good week led by Super Micro (SMCI) up 20% and Cloudflare (NET), up 9%, as PayPal (PYPL) has struggled a bit as it launches a new, higher-margin digital ad business. The S&P 500 is up 14% so far this year but the 10 biggest stocks recently represented almost 37% of the index’s total value, the highest since September 2000, according to FactSet. Use caution and take partial profits if you have some of these in your portfolio.

We have been discussing some great companies and breakthrough technologies, but it is easy to overlook that energy is the foundation of economic and technological development. It is also at the core of how countries secure and project national power.

So today, we add a U.S. renewable energy company that is a leader in an alternative energy source that’s making a comeback.

This morning, from Normandy to Washington, D.C., there will be ceremonies honoring the 80th anniversary of D-Day. Now, we are amidst a different type of struggle, and semiconductor chips are at the heart of it all. And today’s new Explorer recommendation is one of the more important cogs in that global struggle.

The rally since the election continues as Bitcoin reached $90,000 for the first time. Tesla (TSLA) has climbed more than 40%, and the KBW Nasdaq Bank Index, which tracks shares of some of the nation’s largest lenders, is surging.

Dutch Bros (BROS) shares jumped 36% this week as it beat analysts’ expectations on the top and bottom lines while offering improved guidance for the remainder of 2024. Sea Limited (SE) soared 10.3% as the Singapore-based company reported overall net income that beat estimates at $153.3 million, with a better-than-projected 31% rise in revenue for the September quarter.

We need to begin with some bad news. Super Micro Computer (SMCI) stock tumbled 32% yesterday after its audit firm, Ernst & Young, resigned. The auditor said it had recently learned of information “which has led us to no longer be able to rely on management’s and the audit committee’s representations, and to be unwilling to be associated with the financial statements prepared by management.”

Bank stocks such as Morgan Stanley (MS) and Goldman Sachs (GS) had strong earnings while tech is starting to show signs of weakness. ASML (ASML) reported sharply lower quarterly sales and giant Samsung Electronics’ share price (listed on the Korea Exchange) has fallen almost 30% over the past six months as it struggles to catch up with SK Hynix and Micron in supplying the most advanced AI chips.

Still, everyone is waiting for Nvidia’s (NVDA) earnings as capital spending in AI remains robust.

China’s benchmark CSI 300 index has surged 25% in the five days following Beijing’s stimulus measures to unleash its economy and financial markets. This has led to some catch-up growth for Explorer stock and fund recommendations.

The action was not limited to just Chinese stocks but also stocks looking to China for growth. I mentioned commodities last week, but another winner was the luxury business.

The Federal Reserve has voted to lower interest rates by a half percentage point, the first since 2020 and more than many expected. The overwhelming Fed board vote suggests more rate reductions are likely this year. This Fed move was clearly already baked into markets but keep in mind that the Fed only controls overnight interbank interest rates. Nevertheless, this action will help support the market and boost interest rate-sensitive stocks such as real estate and utilities.

This was a rather tough week for stocks though the financial media always goes overboard calling a 2% drop in the Nasdaq index a “plummet.”

For many analysts, copper prices have long been considered a better leading indicator regarding the health of the global economy. Bloomberg reports that Goldman Sachs has exited a long-term bullish position on copper while slashing its price forecast for 2025 by almost $5,000 a ton. The bank has been one of the biggest supporters of the industrial strategic metal, but the increasingly weak Chinese economy has crimped demand, plus excess inventories overhang supply resulting in copper prices being down almost 20% since May.

Explorer stocks had a good week, but I wanted to highlight that recently, Warren Buffett sold almost 400 million of Apple (AAPL) stock during the second quarter. The Oracle of Omaha sold about 390 million shares of Apple stock, reducing Berkshire Hathaway’s ownership to roughly 400 million shares.

Granted, Berkshire booked some giant investment gains during the second quarter, with Apple accounting for a big share of those winnings. This is nothing to sneeze at, but why did Buffett and company decide to sell the shares, thereby missing out on some big capital gains? Forbes notes that Apple’s average closing price in the second quarter was 186, which is well below the 226 at which the stock closed on August 20.

Markets remain on edge after Monday’s big selloff, Tuesday’s recovery, and yesterday’s down day. Some disruptive Explorer stocks were hit rather hard leading to Nio (NIO) being removed from the recommended list today while Super Micro (SMCI) is upgraded to a buy.

On Monday, trading in 401(k)s was more than eight times the daily average, the highest since 2020. My guess is that most of this activity was selling rather than buying.

This was a difficult week for stocks. Yesterday the S&P 500 sank 2.3% while the tech-heavy Nasdaq declined 3.6%. Collectively, the so-called “Magnificent Seven” lost $768 billion in market value.

America does face some uncertainty but overall has a strong economy but, as I have highlighted, the stock market has become too concentrated at the top and debt is building up too rapidly. China, on the other hand, faces economic issues such as weak consumption, a property slump, 20% youth unemployment, and a struggling stock market in the red so far in 2023. Given the size and importance of China’s economy, this impacts all markets.

Explorer stocks put in a solid performance this week as Federal Reserve Chairman Jerome Powell was on Capitol Hill for two days of testimony. His remarks were parsed as if he were an oracle, but the takeaway seems that we are moving towards a rate cut dependent on labor markets cooling off a bit more.

I really don’t like paying too much attention to macro issues like interest rates and would rather focus on new ideas that most investors are not following closely. Right now, in a market so dependent on a small number of leading stocks, you can reduce your portfolio’s overall risk profile by adding some stocks in countries and sectors where expectations and downside risk are low.

Please note that next Thursday is July 4^th and therefore there will not be a Cabot Explorer issue though I will send out an alert if there is any significant news on our stocks.

For Explorer stocks this week, Neo Performance (NOPMF) shares were up 12%, and Super Micro (SMCI) gave back half of last week’s 20% gain.

The dollar rose to its highest level since last year as the Federal Reserve breaks with other central banks by keeping interest rates elevated, giving global investors an incentive to move cash to the U.S. to capture higher bond yields.

Inflation cooled for the second straight month in May, the U.S. labor market seems back to pre-pandemic levels, and the economy is expanding at a low but steady pace.

Therefore, the Fed is holding back on interest rate cuts. Probably the right move. Keep the ammo dry for when it is really needed. This was a solid week for Explorer stocks with all making gains except for a small pullback in Super Micro (SCMI).

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

Exscientia (EXAI) is down about 10% this morning.

Exscientia (EXAI) pulled back yesterday but is recovering this morning.

Based on market conditions and to limit losses, I suggest you sell the following two Explorer recommendations:

Due to escalating regulatory risk by Chinese authorities, please sell Pinduoduo stock. I will have more in this Thursday’s update but, in short, the Chinese are exerting their authority on Chinese companies that have used offshore entities to list on U.S. markets. China wants these companies to list in Hong Kong or Shanghai. There may be some trading and arbitrage opportunities developing, but the risk for Pinduoduo is now too high.

To follow up on today’s issue and new recommendation of Fisker, Inc.

Based on the below press release highlighting the agreement for Australia’s Lynas to build a rare earths refinery in Texas, I recommend you sell your MP Materials (MP) position.

Two portfolio stocks reported earnings yesterday and both remain Buys.

This portfolio stock was up 18.3% yesterday in anticipation of earnings that were released after the market closed.

Sell half your position for a 142% gain.

As I mentioned in yesterday’s issue, we got some bad news on this portfolio stock before the market opened regarding an internal investigation of fraud by the company’s COO and several other employees who apparently significantly overstated sales in 2019.