General Stock Market Trend Remains Up

Market action was a bit more subdued this week after several weeks of back-to-back gains. In fact, small caps fell 1.3%, while large caps dropped 0.8%. Both asset classes are in the red for the year, but by less than 1.5%. That’s a vast improvement over a month ago!

The snap-back rally might be losing a little momentum, but the general trend remains up.

While anything can happen, and I don’t recommend aggressively buying anything that sounds interesting, I do think investors can do well with small caps that have relatively steady cash flow and that have shown they’re growing at or above analyst expectations (such that they exist). At the moment, this describes the majority of stocks in Cabot Small-Cap Confidential.

If market trends continue to improve, I’ll consider taking on more risk in the portfolio—but only if I think we’ll be well compensated for it. Lastly, this week we saw biotech stocks (one of my measures of investor risk appetite) rise over 3%. But they’re still down 25% year-to-date, so keep the recent strength in proper context.  

The bottom line is that I continue to think incremental buying in the stocks you want to hold for the long-term is a good move. Below is a chart of how the various small-cap sectors performed over the last week. Note the pullback in energy, and the rise in health care.

This is an excerpt from Cabot Small-Cap Confidential, which features little-known stocks with big potential. It offers a limited number of subscribers the opportunity to discover overlooked, low-priced stocks that have the potential to skyrocket. This advisory is best suited to experienced investors who embrace volatility.

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