In the middle of an earnings recession and a slowing economy, defensive stocks are probably the best places to be. These companies can maintain earnings growth while most companies are sliding and remain consistent even as the economy deteriorates further.

Defense is king right now. But defensive stocks are even better when they offer growth as well. In such uncertain times, it makes sense to bank on things that are more certain. Stocks poised in front of a megatrend are the best bet. A megatrend acts as a powerful tailwind for a stock that can make a mediocre pick very good and a good pick great.

In this issue, I highlight a defensive stock that is also one of the world’s largest producers of alternative energy. At the same time, it is also one of the best traditional regulated utilities in the country. It offers defense as well as growth and can thrive in any kind of market.

The banking situation has changed the Fed. The damage done by previous rate hikes is making the Central Bank far less hawkish. The risk is shifting from the Inflation/Fed cycle to recession. The end of this cycle may have been expedited. And stocks could rally out of this bear market sooner than thought.

Of course, the banking issues might not be over yet. And the timing and severity of a possible recession is still unknown. Things may get worse in the market before they get better. For now, defensive stocks that can maintain earnings growth in a worsening economy or recession are better places to be.

Stocks have rallied so far this year on optimism that we can get through this inflation and Fed rate hiking cycle without much economic pain. That’s what seems to be happening so far. But this latest “soft landing” rally is facing a formidable foe – history.

Rate hikes almost always slow the economy. But there is typically a long lag time. Since 1961, the Fed has embarked on nine inflation-busting, rate-hiking cycles. Eight of those cycles have led to recession. The yield curve has inverted, a phenomenon that has almost always preceded a recession.

This year was always going to be better than last year. And it’s off to a great start. But it is unlikely that stocks muster a sustained rally out of this bear market until there is more clarity on the extent and timing of an economic bottom.

That said, the current market still offers opportunities. Cyclical stocks have rallied and, for the first time in a long time, there is an opportunity to sell a covered call on one of the portfolio’s cyclical stocks. In this issue, I highlight a covered call opportunity in Visa (V) after the stock has rallied.

I also highlight a fantastic income stock that has likely already made its own low even if the market turns south again. It sells at a dirt-cheap valuation with a high and safe dividend and has recently added momentum to the mix.

Stocks trend higher over time. And history clearly illustrates that bear markets are ideal times to invest ahead of the next bull market. The average bear market is about 15 months long. And this one is already almost a year old. There is a high-percentage chance that a rally ignites in 2023 that will lead us out of this bear market and into the next bull market.

The recent rally has lifted call premiums to the highest levels in many months as more investors are willing to bet on higher prices going forward. But unless this current rally leads us to the next bull market, it’s probably nearly over. It’s a great time to lock in a high income while premiums are fat, and stocks may be close to a near-term high.

The current market is creating a golden opportunity to get a high income in an otherwise crummy market. Let’s grab it. In this issue, I highlight two call-writing opportunities in stocks that have rallied strongly since being added to the portfolio. While I like the prospects of these stocks over the next year, it’s time to err on the side of income.

The market has likely not bottomed yet. The current rally will unlikely be sufficient to drive us out of this bear market ahead of continued high inflation and likely recession in the months ahead.

However, while the market indexes may have further downside, one area of the market may well have already bottomed, namely interest rate-sensitive stocks.

Previously buoyant defensive stocks got clobbered as interest rates spiked to the highest levels in 15 years. But the evidence is overwhelming that the economy is likely headed toward recession in the months ahead. Recessions put downward pressure on interest rates. As the economy worsens and inflation declines, rates are likely to move lower, negating most of the damage done to conservative dividend payers.

There are powerful reasons to believe that interest rate-sensitive stocks may have already bottomed. In this issue, I highlight one of the very best utilities on the market. It’s near the 52-week low after an overdone selloff and should be highly resilient in a recession.

Markets go up and down. Economies boom and bust. Investors get scared and they get greedy. But one of the few constants in an ever-changing investment landscape is the need for income. And investor demand for income is growing as the fastest growing segment of the population is 65 and older and retired.

The demand for the very best income stocks should remain strong. Also, during sideways and down markets, dividends account for most of the total market return. In problematic decades, dividends have almost completely offset market price declines.

It’s true that dividend stocks can still fall in a down market. But the long-term trend for the market is higher. History clearly shows that bear markets are the best time to get in cheap ahead of the next bull market. Meanwhile, dividends provide an income and less volatility while you wait.

Although uncertainty in the market is growing, there are still strong income stocks out there. But we must be careful to find the right ones. A good stock needs to be resilient in a continuing recession, yet able to thrive amidst high inflation, or both, or neither. In this issue, I highlight such a rare bird.


The portfolio is also eliminating a cyclical position and adding a more defensive one. At the same time, we are seizing upon recent strong performance in another stock and selling a call to lock in a high income in this uncertain market.

This week’s GDP number should confirm that we are in a recession. That might be good news for the market.
The worst situation for stocks tends to be a “looming recession”. Stocks tend to fall most as a recession approaches and in the early phases of an actual recession. Stocks also tend to recover before the economy because the market anticipates six to nine months into future. In a typical recession, stocks fall before it hits and recover before it’s over.


If this week’s number confirms that we are in a recession that began at the beginning of the year, the market should be in a more desirable position than if a recession is anticipated later this year or early next year.<.p>


The recent rally in technology is encouraging. I mentioned in last month’s issue that technology stocks had fallen before the overall market and were likely to recover before most other sectors. Since then, portfolio position Qualcomm (QCOM) is up nearly 30%.


This month’s issue highlights another technology stock, Intel (INTC) . The stock is still very cheap with bright prospects in the future. If the market turns south again, the stock should hold up better than the technology sector and be a solid longer-term hold. But if this rally in technology proves to be lasting and QCOM gets called away, we will still have another tech stock that should move higher as well and provide a great call writing opportunity.

There is overwhelming historical evidence that buying good stocks in bear markets is a highly successful long-term strategy. After all, it’s better to buy stocks cheap. And the market always trends higher over time. The truth is that buying stocks in a bear market is the most successful investment strategy ever devised.
Of course, the market may fall further before it recovers. You don’t have to pick one day and invest all your cash. You can trickle in over time. You can invest just a little right now. If the low is already in, you got a great price. If the market falls more, you put more money in later. Over time it will work out.


In this issue, I highlight a portfolio position in the technology sector. The sector plunged into a bear market before the S&P and will likely be one of the first sectors to lead the way back up. The sector was already down less than the overall market in last week’s tumult.

It’s too soon to buy new stocks aggressively. But there is a safer place in the meantime to generate a high yield without much downside in the near term.
In this issue, I highlight a stock from the energy sector, the only market sector having a good year. Yet, the stock is not overvalued or overpriced. It provides a high yield without much downside if the market decline continues. And the price is likely to trend higher over the rest of the year.

The final numbers are in. And they’re impressive.

After a bear market in 2022, the market indexes came back sharply in 2023. That’s not unusual. Prior to last year, there had been nine years of negative S&P 500 returns since 1980. Seven of those down years were followed by up years, and four of those seven up years posted returns of 20% or higher. The market doesn’t usually stay beaten down for long.

The rally that began in November is slowing down, but not dying.

Things are still good. Inflation is falling, the Fed is probably done hiking rates, longer-term rates have peaked, and the economy is still strong. But it’s that time of year. The holidays have a way of taking investor focus away from the market. Stocks tend to do whatever they were doing when investors stopped paying attention, which in this case is edging higher ever so slowly.

The market had a great November. But the rally petered out.

Wall Street always overdoes it. It took the good news about peak interest rates to another level and started pricing in Fed rate cuts early next year. The market pulled back on Monday because the Fed dismissed that notion.

The strong November rally slowed down last week but it’s still very much alive. The S&P 500 closed last week up 8.7% for the month and the good times might continue.

The current belief in peak interest rates and a “soft landing” has investors still in an optimistic mood. The VIX, known as the market’s fear gauge, hit the lowest level since January 2020 last week. Any piece of good news could ignite a further rally with the current kindling.

This has been a very positive month so far in the market. Will the rally continue?

After three straight down months for the S&P 500 where the index dipped into correction territory (down 10% from the high), the index has turned around and is up over 5% so far in November. The catalyst is the perception that interest rates have peaked.

What a difference a week can make. Just one week ago, the market was reeling. The S&P 500 concluded the third straight month of declines after falling into correction territory a few days earlier. But then stocks turned around and had the best week of the year with the S&P 500 rallying nearly 6% for the week.

It’s officially a correction. The S&P 500 fell 10% below the 52-week high on a closing basis last week. Now what?

As usual, all eyes are on the Fed. The Central Bank will decide on interest rates on Wednesday. Also, this week are earnings from Apple (AAPL) and several other large companies and another jobs report on Friday. But the Fed should be the main event.

The market is rallying this month as the “Goldilocks” scenario gets renewed traction.

The economy is still solid. There are no signs of recession. At the same time, the Fed is making noises like it may be done hiking rates because of the higher longer-term rates. A good earnings season may also buoy stocks.

The market was already struggling after the Fed’s “higher for longer” comment about interest rates. Now it’s getting hit with ugly headlines regarding the situation in Israel.

Geopolitical risks are always out there, and they act up occasionally. Hopefully, this new Middle East situation won’t expand into a wider conflict. There is also the Ukraine conflict. These are risks that could develop into a much bigger problem. Even if they don’t, there is still the interest rate and inflation situation.

Even the temporarily averted government shutdown can’t do much for this market. The S&P 500 is now down more than 7% from the 52-week high and may be headed to correction territory, down 10% or more.

The main problem is high interest rates. The benchmark ten-year Treasury rate continues to rise and just hit a new 16-year high near 4.7%. The Fed’s recent statement that interest rates will remain higher for longer continues to demoralize investors.

The market is always uncertain. No one ever really knows in which direction the next 5% or 10% move will be. But this is a much higher level of uncertainty than usual.

The good year so far has been a surprise. Most pundits were forecasting more gloom and doom at the beginning of the year. But the S&P 500 is up 15% YTD. It rallied on the promise of a soft landing and then got a further boost as artificial intelligence spending promises to be a strong growth catalyst for the market’s largest sector for years to come. After sputtering for the last six weeks, where does it go from here?

The market is starting this week higher on optimism about a “soft landing.” But the CPI inflation number for August that comes out on Wednesday could derail or support the rally.

Things seem upbeat Monday morning. Treasury Secretary Janet Yellen said on Sunday that she is “feeling very good” about avoiding a recession while still reining in prices. Of course, she called inflation “transitory” in early 2021. There were also some encouraging numbers about the Chinese economy. Also, the Fed is widely expected not to raise the Fed Funds rate later this month.

Sell USB November 19th $60 calls at $2.30 or better

Sell CVX April 1 $95.50 call at $4.30 or better

Sell BGS February 19 $27.50 call at $2.40 or better

The idea is to sell a covered call, meaning you already own or you just purchased V on the buy recommendation.

The first issue of Cabot Income Advisor just came out yesterday. The idea is to sell a covered call, meaning you already own or you just purchased IIPR on the buy recommendation.