The market has been bouncy but slightly higher for the year so far, but it’s a different story under the hood.

Eight of the eleven S&P stock sectors are outperforming the market, and none of them is technology. That’s a stark difference from most of this bull market, where technology and AI drove the market higher while most other sectors underperformed. Now, the rally is broadening.

The market isn’t as expensive as it may seem, as the valuations of many stocks are below that of the overall market and don’t reflect the index returns of the bull market so far. Most of the expensive stocks are in technology, but those stocks are getting cheaper as well.

In this issue, I highlight two of the most promising dividend stocks for 2026. Both stocks have been in the portfolio before and have provided great income and total returns in a short period of time. They also can generate huge call premiums.

The market has rebounded encouragingly from last Monday’s Greenland/tariff fears—and, ideally, that shakeout will prove to be the last one for the big-cap indexes and for growth stocks before a sustained run higher. Still, to this point, while resilient, the evidence hasn’t changed, with the broad market doing well, but also with many areas of the market still lagging. Thus, we’ll again leave our Market Monitor at a level 7, but now’s the time to really pay attention—a reversal lower would obviously be iffy, but a rotation into many growth stocks that have rested for three months is possible.

This week’s list is again well-rounded, with many names acting well ahead of their reports. For our Top Pick, we’ll go with a commodity-ish name that’s finally hesitated the past couple of weeks as its moving averages start to catch up. A bit more weakness should lead to a solid entry.

More than half the country is buried in snow or ice today. And yet, stocks continue to hum along regardless of the weather, economic headwinds or myriad geopolitical worries. A big one was quickly stamped out last week, when renewed tariff threats caused a brief market shock before cooler heads prevailed in Davos. This week will be dominated by mega-cap earnings and another Fed meeting. Given the market’s resilience against all-comers of late, today we take another big swing with a mid-cap industrial stock that was the Top Pick from Tyler Laundon in the most recent edition of Cabot Early Opportunities advisory.

Details inside.

Please note this is an update focused solely on our open positions as I am away from my home office and stuck in travel limbo having been impacted by the snow/ice storm this past weekend. I HOPE to be back at the desk this evening, but that is in question. However, while I’m away from my desk, I am still able to monitor our positions if we need to make moves.

Please note this is an update focused solely on our open positions as I am away from my home office and stuck in travel limbo having been impacted by the snow/ice storm this past weekend. I HOPE to be back at the desk this evening, but that is in question. However, while I’m away from my desk, I am still able to monitor our positions if we need to make moves.

If you are a commodities or small-cap investor, you’d probably be heavily invested right now -- but, for growth stocks, the environment remains challenging, with lots of ups and downs but no real progress, and with most growth funds (including the Nasdaq) under performing even defensive stocks. The odds favor the next major move being up, but until that starts, we’re staying relatively close to shore and waiting for more stocks to get going, possibly during earnings season.

Momentum has broadened out to start 2026, with several previously under‑the‑radar groups (like industrials) showing powerful relative strength, even as last year’s market leaders take a breather.

This month’s issue leans into these emerging trends. I feature companies tied to infrastructure, building systems, aerospace engines, and industrial filtration. I’ve also included a fast‑moving biotech company with multiple near‑term catalysts.

Enjoy!

Coming off record highs early last week, U.S. equities drifted lower as the week progressed as the first week of the corporate earnings season unfolded. And despite upbeat earnings from select tech and semiconductor names, profit-taking set in across large caps late in the week and kept the major averages slightly underwater by Friday’s close. Small caps bucked the broader trend, continuing their early-year leadership as the Russell 2000 extended gains on optimism around economic resilience and rotation out of mega caps. For the week, the S&P 500 lost 0.4%, the Dow fell 0.3%, and the Nasdaq Composite declined by 0.7%.

The market took a good-sized hit today, and we see the action as a shot across the bow and are remaining flexible. But as always, we’re going to go with what’s in front of us: Right here, many stocks remain in good shape, though clearly things are mixed, while some yellow flags have arisen. It’s imperative to stick with what’s working, aim for decent entry points and actively manage your portfolio (partial profits on the way up, raising stops, etc.). We’ll again stick with a level 7 on the Market Monitor, though the next few days should be telling.

This week’s list has a bigger growth mix, though as has been the case, there’s something for everyone here. Our Top Pick has shown outstanding power and ties into both AI and the recently strong defense and space trades. Try to buy on further weakness.

Tariffs are back in the news, and the market doesn’t like it. How long they remain in the news is anybody’s guess. Perhaps the situation will be settled over lunch in Davos this week. In the meantime, fourth-quarter earnings season serves as a welcome diversion and ramps up this week after some mixed results from the banks last week. Speaking of banks, today we add a regional play that should pair well with our Morgan Stanley (MS) holding. It’s a lower-risk, income-generating stock that is a new choice of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

*Please note, S&P 500 futures are indicated lower by 1.5% this morning on renewed tariff fears.

Coming off record highs early last week, U.S. equities drifted lower as the week progressed as the first week of the corporate earnings season unfolded. And despite upbeat earnings from select tech and semiconductor names, profit-taking set in across large caps late in the week and kept the major averages slightly underwater by Friday’s close. Small caps bucked the broader trend, continuing their early-year leadership as the Russell 2000 extended gains on optimism around economic resilience and rotation out of mega caps. For the week, the S&P 500 lost 0.4%, the Dow fell 0.3%, and the Nasdaq Composite declined by 0.7%.

*Please note, S&P 500 futures are indicated lower by 1.5% this morning on renewed tariff fears.

Coming off record highs early last week, U.S. equities drifted lower as the week progressed as the first week of the corporate earnings season unfolded. And despite upbeat earnings from select tech and semiconductor names, profit-taking set in across large caps late in the week and kept the major averages slightly underwater by Friday’s close. Small caps bucked the broader trend, continuing their early-year leadership as the Russell 2000 extended gains on optimism around economic resilience and rotation out of mega caps. For the week, the S&P 500 lost 0.4%, the Dow fell 0.3%, and the Nasdaq Composite declined by 0.7%.

Let’s begin in Davos, Switzerland where the world’s financial and political bigwigs are gathering at the World Economic Forum to do deals and await the fate of Greenland. Markets rebounded yesterday as President Trump softened his position on Greenland a bit, thus raising hopes of reaching an amicable agreement.

Gold was a hot topic as investors continue to seek a hedge on uncertainty. Central banks have been significant net buyers of gold every year since 2011.

Tariffs are back in the news. And the stock market doesn’t like it.

Investors shrug off a lot of things these days – geopolitical turmoil (lots of it), flagging jobs growth, a record-long government shutdown, wars, etc. But tariffs, and tariff threats, are still a four-letter word on Wall Street. So it was no surprise that stocks had their worst day of the young year on Tuesday after President Trump threatened high tariffs on Europe over the Greenland situation, and European leaders responded in kind.

Perhaps the whole kerfuffle will be settled over a catered lunch at the World Economic Forum in Davos this week. Or maybe tensions will escalate further. Either way, this feels like a pivotal week for stocks.

The broadening market rally has been usurped by the return of tariffs, at least for now.

The market is unnerved to start this week after President Trump threatened the European Union (EU) with additional tariffs and the EU is threatening retaliatory measures. The issue caught investors by surprise and is threatening to derail the ascending market.

It’s been a good start to the year so far with the S&P up 1.38%. But the bigger story is under the hood.

Most sectors are outperforming the S&P 500. Seven of the eleven S&P stock sectors are outperforming the index in January. And none of them are technology. This is in sharp contrast to performance through most of this bull market, with technology driving the market higher while most other stocks sputter around.

It’s a thorny subject, but one that I think merits at least a brief discussion: direct government intervention as it pertains to the private defense sector—and by extension, to our holding in GE Aerospace (GE).

On January 7, the White House issued an executive order (EO) that prohibited defense companies from making share repurchases and paying dividends to shareholders. It also placed restrictions on executive compensation, except for companies making investments to modernize weapons production facilities.

WHAT TO DO NOW: Remain cautious with growth stocks. While the broad market is in decent shape, growth stocks continue to bring up the rear, with our Growth Tides and Aggression Index having trouble while some setups begin to sag. In the Model Portfolio, we cut our loss in JFrog (FROG) this week and today are placing Lilly (LLY) on Hold as that stock cracked near-term support. That said, given our big cash position, we are adding one half-sized new position tonight—Axsome Therapeutics (AXSM), which is in a clear uptrend and has rapid growth in the pipeline for years to come. Our cash position will still be around 60%, which is a bit high, though we’re content to go slow until growth stocks kick into gear.

Halfway through January and one of the big stories of the year is the continued outperformance of small-cap stocks. Along with the strength in the equal-weight S&P 500 (the Invesco S&P 500 EW ETF (RSP) is an easy option to track this), this is part of the “market is broadening out” theme that you’ve likely been hearing about.

As I stated several times in the waning months of last year, small caps benefit from (1) an early cycle backdrop, (2) stabilizing earnings revisions, (3) positive operating leverage, and (4) lower rates. These conditions are materializing right now. Analysts expect small-cap earnings to grow 15% in 2026, only slightly ahead of the 14.8% expected for large caps but a massive improvement from the small-cap earnings contractions in 2023 and 2024, and above the expected 2025 earnings growth rate of 13.4%. By the way, mid‑cap earnings are expected to grow by 19.3% in 2026. This is helping to draw more attention to the small and mid-cap (SMID) asset class, which is actually what a lot of small-cap ETFs and mutual funds really have exposure to.

Value stocks are outperforming growth stocks right now.

That’s not a sentence that’s been uttered (or written) often over the past decade and a half. But for the past three months, it’s definitely true. Growth stocks – as measured by the Investors’ Business Daily 50 ETF (FFTY) – peaked in late October and are still 10% off their pre-Halloween apex. Value stocks – as measured by the Vanguard Value Index ETF (VTV) – have risen more than 4% during that time and have really come on since the calendar flipped to 2026, advancing nearly 3%.

Cannabis investors should see a significant catalyst inside the next six weeks. That’s a reasonable time frame to expect Attorney General Pam Bondi to implement President Donald Trump’s executive order to reschedule cannabis.

The news would spark a sellable rally for traders. Long-term investors should hold through.

The background: Rescheduling means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. That will save the larger publicly traded cannabis companies like the ones in our portfolio tens of millions of dollars each in annual tax expenses. That’s because rescheduling neutralizes an IRS rule that bars the deduction of operating expenses against the sale of Schedule I substances.

So far, so good. On just the seventh trading day of the year, the S&P 500 is already about 2% higher. Early 2026 performance is indicative that stocks want to go higher.

A look under the hood tells an interesting story. Cyclical stocks are booming. The sectors are killing it so far in 2026 with materials, consumer discretionary, and industrials leading the pack, with stunning YTD returns of 6.78%, 5.82%, and 4.43% respectively. Investors are betting on a strong economy in the new year.

For anyone engaged in the forecasting business, the temptation is always present to make a sensational claim about the future in order to stand out from the crowd and garner mainstream media attention. And truth be told, for those of us whose livelihoods involve predicting financial markets, that temptation must often be suppressed in the interest of professionalism.

Big oil and oil services like Halliburton (HAL) have moved upward in the wake of the Venezuela situation. The world is now awash in oil, but the sector was already looking interesting as technology has greatly outperformed energy. The Energy Select Sector SPDR ETF (XLE) has treaded water for the past three years while the Technology Select Sector SPDR ETF (XLK) has surged almost 240%.

Sector rotation can be a winning strategy both in terms of returns and managing overall risk. We will be looking for these opportunities throughout the year.

We’re going to kick off 2026 by locking in profits with Argan (AGX), an engineering, procurement and construction company that specializes in gas-fired power plants, biomass projects and solar facilities.

WHAT TO DO NOW: We usually hesitate to do much of anything on the first day or two of the New Year given the volatility—but CrowdStrike (CRWD) fell back to support earlier this week and is getting hit again today, falling to new recent lows. We’ll follow our plan and cut our loss here, aiming to redeploy the money in a stronger name should growth stocks kick into gear. Our cash position will now be in the mid-50% range.

I plan on locking in returns on several of our current positions and immediately selling more premium. In addition, I plan to add at least one more stock to the portfolio, which will bring our total to seven stocks. I also intend on continuing to ladder our positions in perpetuity, so we are collecting premium on a weekly basis. As it stands, we have positions due to expire over the next four consecutive weeks.



Other than that, there really isn’t much to say at the moment. We continue to be pleased with the overall mechanics of our approach and more importantly the overall return, which currently stands at 145.7%.

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