July 2, 2025

Choppy for Now, Stronger for Later

The S&P 500 reached a new all-time high. Now what?

It’s been a tremendous recovery since the “tariff Armageddon” days of early April. Stocks went from the precipice of a bear market to a brand new high in just a couple of months.

The market is being propelled higher by technology as the artificial intelligence trade turned hot again. Technology had been dragging the market lower all year until recently after leading it higher for most of the bull market. The sector sold off after the DeepSeek news in late January and then took a further hit with the tariff panic in April.

The sector was due for a pullback. Nothing goes straight up. But AI has had its bear market. And AI demand and spending continue to grow at a fever clip and will likely do so regardless of what happens with tariffs or the economy. Portfolio positions Broadcom (AVGO), Constellation Energy (CEG), and Oracle (ORCL) have had huge runs already and are continuing to move higher.

But there is reason for caution. The July 9^th tariff deadline is rapidly approaching. There is a good chance of a headline or two that the market doesn’t like from that. The state of the economy is still highly uncertain. The level of growth, along with the Fed’s reaction and the fate of longer-term interest rates, are still very much in question. All of this uncertainty abounds with stocks perched at the high.

I believe it is highly likely that stocks end the year higher than they are now. Tariffs are unlikely to be a disaster. A recession is nowhere in sight. And the AI catalyst is back and badder than ever. But the rest of the summer could be more of a problem. Anything is possible, of course. And the more optimistic scenario usually wins the day in the market. But it is difficult to see how stocks sail past the high and well into new territory until there is more clarity on these issues.

Dividends are a great place to be in times like this. I particularly like The Williams Companies (WMB) right now. It has been resilient in all kinds of markets and generated impressive returns for several years. It also pays a strong dividend and has the most growth potential of all the midstream portfolio positions.

Recent Activity

June 11
Broadcom Inc. (AVGO) – Rating change “BUY” to “HOLD”

High Yield Tier

AGNC Investment Corporation (AGNC – yield 15.7%) – The mortgage REIT has moved well above the low of early April. That’s the most that can be said for it right now. AGNC has benefited from the better economic news and a more risk-friendly environment. Even though the strong jobs reports make the Fed less likely to cut rates soon, it is still likely that the Fed will lower the fed funds rate this year, which will reduce funding costs. It will also help with the net asset value (NAV), which tends to determine the share price direction. However, there is still a lot of uncertainty out there between the tariffs and the economy. Meanwhile, AGNC pays a huge yield while you wait. HOLD

Brookfield Infrastructure Partners (BIP – yield 5.1%) – BIP has been much better this year than it had been for the two prior years. Total returns are better than the overall market both YTD and for the last year, but it’s still not making up for lost time. BIP just made a new high for this calendar year. It can’t really soar, though, because interest rates remain peskily high. High rates are bad for an MLP because they increase borrowing costs and narrow profits. But the business is sound. It’s entirely possible that BIP can make a run well beyond the 52-week high, especially if interest rates trend lower from here. (This security generates a K1 form at tax time.) HOLD

Cheniere Energy Partners, L.P. (CQP – yield 5.8%) – This NGL export partnership had been a stellar performer until the April swoon in the market. It hasn’t bounced back to previous levels. However, natural gas demand remains strong and exports from Cheniere are rising. It has pledged to double NGL production, and new facilities are coming online that should boost the bottom line this year. CQP is being held back by tariff and economic fears right now. But that situation should improve over time, and the stock pays you well to wait. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.9%) – The midstream energy partnership is a great position to have right now. The price has been trending higher since early April, but it still hasn’t gotten back to March levels, so it’s cheap. The payout is huge and very safe and provides a great buffer during flat and down markets. And the revenues will continue to thrive in just about any environment. The midstream partnership also has two major projects coming online this year, representing $6 billion in investment that should grow the top and bottom lines. (This security generates a K1 form at tax time.) BUY

FS KKR Capital Corp. (FSK – yield 13.5%) – Things are OK with this BDC but not great. It’s still well below the high made in February. It’s recovered from the April market but is bouncing around. FSK has returned about 3% YTD, thanks to the huge dividend, and has returned 20% over the past year, which is much better than the overall market. It’s being held back by fears about a slowing economy. The BDC has a portfolio of small businesses, which tend to be cyclical. It’s difficult for FSK to muster strong upside traction while the jury is still out on the economy. Meanwhile, it pays that massive yield that should be secure while you wait around. HOLD

Main Street Capital Corporation (MAIN – yield 7.2%) – The story for this BDC is like FSK but a little better. MAIN owns equity stakes and has benefited more from the rising market. If economic optimism is confirmed going forward, the stock could have a nice move higher. MAIN has delivered a solid return since being added to the portfolio last year. The fortunes of this portfolio position will depend on the economic news going forward. And it pays a high yield with monthly dividends and keeps ringing the register even when the price wallows. HOLD

ONEOK Inc. (OKE – yield 5.1%) – This midstream energy company’s stock performance has been disappointing. OKE is down 18% YTD while the overall energy sector is even over the same period. OKE recently took a hit when it missed on earnings in an unforgiving environment. But earnings were generally solid, and ONEOK reaffirmed guidance for 2025 and 2026, which includes an earnings growth jump to 15% as new assets come online, including two sizable recent acquisitions. The story is still quite strong, but there has been some recent share dilution that somewhat mutes the earnings growth. This stock should pick up, but I’ll watch it closely. HOLD

The Williams Companies, Inc. (WMB – yield 3.2%) – WMB has been by far the best-performing midstream energy company in the portfolio this year with a 14% YTD return. The reason for the superior performance is likely the exposure to more growth. It’s connected to the growth regions and well-connected to NGL exports and increasing demand for electricity. Natural gas demand is highly resilient and even remained so during the pandemic. Williams delivered another solid earnings report and raised guidance for 2025 as project expansions come online. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.5%) – AbbVie should have a bright future. The biotech innovator has moved beyond replacing Humira revenues after the patent expiration and is now growing revenue and earnings again. And healthcare is cheap. The sector is the cheapest it’s been since the pandemic, while the population is aging at warp speed. The problem is near-term uncertainty. The executive order tying U.S. drug prices to international prices has made investors cautious, although it is still unclear how that plays out. There is also the issue of pharmaceuticals being targeted for tariffs floating around after the administration said it is coming. The issue could have a negative impact on drug companies, and they are unlikely to move meaningfully higher until there is more clarity. HOLD

Ally Financial Inc. (ALLY – yield 3.1%) – It’s really about the economy with this online banker. ALLY made a nice move over the past couple of months with the better economic news. It’s up 12% YTD and 24% since the April low. ALLY is also approaching the highest price of the year so far. Rates are still high, and there is still a high degree of uncertainty regarding the direction of the economy over the rest of the year, but the prognosis is improving. As long as the economy stays solid and interest rates don’t spike significantly higher, ALLY should be strong and eventually make up for some lost time. HOLD

Broadcom Inc. (AVGO – yield 0.9%) – The custom AI chipmaker is on the move again. It had leveled off and even pulled back a little for a couple of weeks after a huge 80% surge from the April low. But it has moved up 10% in just the last week. The AI trade is back, and technology is dominant once again. AVGO is a key player with rapidly growing AI revenue and some hot products. Although the quick and easy part of the move higher may be behind it, AVGO is certainly capable of moving higher from here over the rest of the year. HOLD

Cheniere Energy, Inc. (LNG – yield 0.8%) – The country’s largest exporter of natural gas reported earnings that exceeded expectations and reiterated previous guidance for 2025. Commercial activity among LNG exporters has gained momentum after the administration lifted a moratorium on export permits. Cheniere plans to double exports by building more facilities. Several of those projects were recently completed and should begin to add to the bottom line. LNG has been bouncing around to nowhere for the last two months. Hopefully, it can break out soon. HOLD

Constellation Energy Corporation (CEG – yield 0.5%) – Constellation announced another big energy deal. The company struck a 20-year deal to provide nuclear power to Meta (META) to power its AI-capable data centers from its nuclear plant in Clinton, IL. Financial details are not yet available. It is the latest in tech companies purchasing carbon-free nuclear power to provide for huge growth in electricity demand from data centers. Constellation indicated that such a deal, and maybe more, was imminent in the last earnings report. CEG had also pulled back after a huge surge from the April low. But it has been moving higher again, up about 12% over the last several weeks, although it had a big pullback on Tuesday amid profit-taking in the AI trade. HOLD

Digital Realty Trust, Inc. (DLR – yield 2.8%) – This data center REIT is back. DLR had trended lower for more than four months but has soared over 30% since early April. Despite the recent spike, DLR is still down 2% for the year and 10% below the high. Yet it has returned 58% since being added to the portfolio about two years ago. It trades more with technology than other REITs because it specializes in data centers. Digital also raised its funds from operations (FFOs) guidance for this year because of strong data center demand. Hopefully, DLR can generate traction and move back to and beyond the high. HOLD

Eli Lilly and Company (LLY – yield 0.7%) – LLY is a juggernaut that’s lost its mojo over the past year. It’s down 20% from the 52-week high and is down over 13% over the past year. But even after the lackluster year, LLY has still returned more than 400% over the last five years. It’s a hot stock that has cooled off lately. That’s a big slowdown. Drugs are likely soon to be targeted for tariffs, and inputs for Lilly’s weight-loss drugs come from Ireland. However, the administration indicated that time would be given to relocate facilities to the U.S., and Lilly has already begun that process. Tariffs are unlikely to sting Lilly that much.

Lilly is still knocking the cover off the ball with huge demand for its weight-loss and other drugs. There is also likely approval for an oral weight-loss drug later this year. But until there is more clarity on these issues, LLY is unlikely to generate lasting upside traction. That’s why it is rated “HOLD” for now. But LLY should soar on the other side of this uncertainty and make up for lost time. HOLD

McKesson Corporation (MCK – yield 0.4%) – The supply chain pharmaceutical company has leveled off a bit over the past month. But the uptrend has just slowed. MCK is still up 26% YTD and not far from the 52-week high. MCK was downgraded to a HOLD rating as the healthcare sector is under pressure and will continue to be so in the weeks ahead as pricing and tariff issues are front and center. But this is another impressive quarter for a stock that has been red hot and likely won’t be very negatively affected by the issues. However, if the healthcare sector suffers, it will likely affect MCK in the near term. HOLD

Oracle Corporation (ORCL – yield 0.9%) – There’s more great news! The stock is again soaring this week after the company announced it has signed several new deals, including a single cloud deal worth $30 billion in annual revenue. That’s nearly three times the size of its current cloud infrastructure business. The revenue is expected to start coming in fiscal 2028. The stock climbed as much as 8.6% on Monday morning.

Management reiterated enormous growth with data centers and AI in the last earnings report. OCI revenue grew 49% last year. While that’s impressive, management has said growth should eclipse 70% this year. There isn’t nearly enough current data center capacity to meet demand. Management intends to double data center capacity this fiscal year and triple it by the end of next fiscal year. This news sends future revenue projections to a different level. BUY

Qualcomm Inc. (QCOM – yield 2.2%) – The chipmaker got a boost after reporting a deal to buy Alphawave IP Group for $2.4 billion to move faster into the artificial intelligence data center market. Qualcomm is making a big push to get its central processing unit chips used in the fast-growing data center market. The deal is expected to close in the first quarter of 2026. The market likes that deal as the stock jumped about 4% on the day of the announcement. The company is broadening its offerings across a wider spectrum, which is good for the future. But the market wants to see rising smartphone demand for the stock to take off. That isn’t happening yet. HOLD

Toll Brothers, Inc. (TOL – yield 0.9%) – This beleaguered homebuilder company stock has been moving higher following the better-than-expected economic news. A solid economy is good for housing demand. But TOL is still down 3% YTD and 25% from the 52-week high. It’s a problem that mortgage rates are staying stubbornly high, which hurts housing affordability. But if the economy proves to be strong for the rest of the year, TOL could make a sustained move higher. We will see how the economic news plays out. The longer-term supply/demand dynamic is hugely favorable to this company, and it should muster a sustained upside move eventually. HOLD

Waste Management, Inc. (WM – yield 1.4%) – The garbage king and defensive stalwart has been weak. It was down over 5% in June while the market rose to a new high. The stock tends to be bouncy, although in an upward trend. It can also get neglected while investors focus on the “risk on” trades. But it’s fine. The defensive earnings will make the stock attractive in a flat or down market, yet it has a history of solid performance in good markets, too. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.3%) – The regulated and clean energy utility stock had been trending higher since April, but it’s pulling back this week. The Senate bill is coming up for a crucial vote this week, and that bill cuts clean energy subsidies. This week’s pullback in NEE indicates that investors believe the bill will likely pass. The subsidies had given support to much of the industry. It’s certainly negative for NextEra, which was a big beneficiary. The company can stand on its own and has before. In fact, NEE had recovered nicely since the bill was proposed. It should endure this storm in decent shape. HOLD

USB Depository Shares (USB-PS – yield 6.1%) – The recent turbulence should have been a good time for fixed income. But interest rates spiked along with the stock market volatility. As a result, this preferred stock plunged to a new 52-week low. The combination of economic uncertainty and rising interest rates took the stock down. However, it should regain traction as the market has stabilized, and rates are likely to trend lower eventually. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.3%) – Ditto for VCLT. The long-term corporate bond ETF loves falling interest rates and hates rising ones. There will be more price pressure if rates continue to rise and vice versa. But the situation over the course of the year should be more positive than it has been. BUY

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