June 18, 2025

Israel and Iran Add More Uncertainty

There really isn’t a lot to complain about. But I’ll try.

The S&P 500 spiked about 25% from the low of early April. The index is now up around 2% YTD, up 1.5% in June, and is just 2% from the all-time high. That’s great in terms of coming off the precipice of a bear market. But a 2% YTD return halfway through June isn’t exactly lighting it on fire.

Investors have decided that the tariffs won’t cause a disaster, but there is still uncertainty. The economy is nowhere near recession, but still not great. And now there’s a new worry, the Israel/Iran war.

Stocks sold off on Friday as Israel and Iran exchanged bombings. But the market rose on Monday as investors are expecting a quick end to the conflict. On Tuesday, there was more cause for concern. Anything can happen. The conflict adds uncertainty beyond the tariffs and the economy.

While stocks have indeed come roaring back, it’s hard to see how the market musters lasting upside traction from here without more clarity on these issues. Optimism is usually the prevailing investor emotion. And that will probably turn out to be correct. The Israel/Iran war is likely to end quickly. The tariffs don’t appear to be causing inflation or recession. And the economy remains buoyant. Things look basically good. But we’re still not out of the woods while the S&P 500 is perched near the high.

As I mentioned in last week’s exquisitely crafted issue, there is a good chance of a flatter market than we have had in recent years over the rest of this year. That makes it a great time for dividends, which roll in no matter where interest rates trend, how the tariffs shake out, or what the Ayatollah does.

While most of the portfolio stocks have been trending sideways, our newest addition, Oracle Corporation (ORCL), had a spectacular week.

Recent Activity

May 28
NextEra Energy (NEE) – Rating change “BUY” to “HOLD”

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

High Yield Tier

AGNC Investment Corporation (AGNC – yield 15.4%) – The mortgage REIT has been acting a little better lately. The price has moved up 6.7% in the last two weeks. The better economic news and a more risk-friendly environment has drawn more investors. Even though the strong jobs and low inflation number make the Fed less likely to cut rates soon, it is still likely that the Fed will lower the Fed Funds rates 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. It looks like better days ahead and AGNC pays a huge yield while you wait. HOLD

Brookfield Infrastructure Partners (BIP – yield 5.2%) – BIP has made a solid move up from the recent bottom since early April. The price achieved the highest level YTD and is within about $3 per share of the 52-week high. BIP is finally getting some traction after two lousy years amid inflation and rising interest rates. It’s an impressive move considering interest rates are remaining stubbornly high, which is bad for an MLP because it increases borrowing costs and narrows 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 5.7) – This NGL export partnership had been a stellar performer until the April swoon in the market. It hasn’t bounced back to levels before that. 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 economy fears right now. But that situation should be temporary, and the stock pays you well to wait. Meanwhile, CQP could get a boost if the Israel/Iran conflict drags on or gets worse and energy prices move higher as a result. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.8%) – 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 during 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 13.3) – Prospects for this Business Development Company (BDC) are improving. FSK had been held back by fears about a slowing economy and possible recession. The BDC has a portfolio of small businesses which tend to be cyclical. But the recent good jobs report is feeding a perception that the economy will be OK. The return is slightly positive YTD in a year that has not been a good one so far for most cyclical stocks. Meanwhile, it pays that massive yield that should be secure. If the economy holds up FSK should do well. HOLD

Main Street Capital Corporation (MAIN – yield 7.4%) – The story for this BDC is like FSK. MAIN has been trending higher since early April and got a boost over the past week as the economic prognosis improved. The investment outlook has been cautious because of rising expenses and tariff concerns, like most other companies. But if the 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 while you wait around. HOLD

ONEOK Inc. (OKE – yield 5.0%) – This midstream energy company stock performance has been disappointing. OKE is down over 16% YTD while the overall energy sector is up about 2% 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 coming 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 3.3%) – WMB has been by far the best performing midstream energy company in the portfolio this year with an 11.2% YTD return. Natural gas demand is highly resilient and even remained so during the pandemic. Williams also has solid growth ahead with its increasing exposure to the NGL export market. The price is within a few dollars of the 52-week high. Williams delivered another solid earnings report and raised guidance for 2025 as project expansions come online. WMB will likely continue to march back toward the high and beyond unless the market rolls over again. But regardless, it should be a solid holding over the rest of the year. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.4%) – ABBV continues to hang in there. It took a hit along with the rest of the market in early April. Then the quick recovery got interrupted by pending tariff and pricing issues in May. Health care is still vulnerable to tariff news and stocks have been stuck. The executive order tying U.S. drug prices to international prices landed without much damage to the stocks. But 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. AbbVie itself is doing well as the Humira expiration pain is behind it and earnings are growing again. HOLD

Ally Financial Inc. (ALLY – yield 3.3%) – This online banker has been bouncing around since late last summer. There was a selloff in April and then a quick recovery. But ALLY had not really been able to generate meaningful upside traction. That might be changing. The price has spiked over 20% since late April. 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. ALLY is getting a boost from the strong jobs report. As long as the economy stays solid and the worst of the tariff uncertainty stays behind, ALLY should be strong and make up for lost time at some point. HOLD

Broadcom Inc. (AVGO – yield 0.9%) – The custom AI chipmaker has leveled off after the earnings report. AVGO had a huge 80% rise from the low of April. The company did what was expected in the earnings report but did issue unexpected and exciting news, like the 10-for-1 stock split or the estimates of $60 to $90 billion in AI revenue in a few years. It looks like a “sell the news” situation. But while the price has stopped rising for now, it hasn’t pulled back with any significance. It’s holding the gains, just not adding to them for the time being. It’s encouraging that AVGO is retaining its gains after the surge. HOLD

Cheniere Energy, Inc. (LNG – yield 0.9%) – 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 by building more export facilities. Several of those projects were recently completed and should begin to add to the bottom line. LNG had been a prime candidate to be added to the S&P 500 index, which could induce new buying. But it looks like that won’t happen this time and the stock pulled back. But it spiked higher last week as energy prices rose amid the Israel and Iran conflict. HOLD

Constellation Energy Corporation (CEG – yield 0.5%) – Constellation announced another big energy deal earlier this month. The company struck a 20-year deal to provide nuclear power to Meta (FB) to power its AI-capable data centers from its nuclear plant in Clinton, Illinois. Financial details are not yet available. It is the latest example of 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 initially jumped as much as 9% higher on the news, then pulled back and lost ground for the day. It looks like another example of selling the news. CEG has rocketed more than 90% higher since early April. The price had to slow down eventually and now the stock has leveled off. However, CEG is holding onto the recent gains. That’s an encouraging sign. 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 more than 30% since early April. Despite the recent spike, DLR is still barely positive for the year and 10% below the high. Yet it has returned 59% since being added to the portfolio less than two years ago. It trades more with technology that 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, this uptrend can take DLR up toward the high. HOLD

Eli Lilly and Company (LLY – yield 0.7%) – LLY is a juggernaut that’s been stuck in the mud. It’s down more than 15% from the 52-week high and is down over 6% over the past year. This is a stock that has returned over 400% over the last five years. 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. There’s also the issue of “most favored nation” drug pricing. But it’s unclear how that will work and how much other nations will reduce their prices.

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 that could be a game-changer. 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 the stock 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 it’s still up 27% YTD and not far from the 52-week high. MCK was downgraded to a HOLD rating as the health care 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 health care sector suffers it will likely affect MCK in the near term. HOLD

Oracle Corporation (ORCL – yield 0.9%) – Wow! Oracle killed it on earnings and had a huge week. The technology stalwart reported earnings that beat expectations last week. But the main issue was that management reiterated enormous growth with data centers and AI. 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 level of growth was indicated in the last quarterly report. While it was reaffirmed in the latest quarter, I think the good news last quarter got lost in the tariff volatility. Oracle represents a new growth horizon in AI infrastructure. Investors were reminded and reassured that Oracle has a huge growth catalyst ahead. The stock soared over 23% last week alone and has returned 30% since being added to the portfolio last month. ORCL may consolidate for a few weeks but could continue to trend higher in the months ahead. BUY

Qualcomm Inc. (QCOM – yield 2.3%) – 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 services 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. HOLD

Toll Brothers, Inc. (TOL – yield 0.9%) – This beleaguered homebuilder company stock has been moving higher following the strong jobs report. A solid economy is good for housing demand. But TOL is still down 14% YTD and 35% 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 is delivering as advertised so far. It faced a huge defensive test shortly after being added to the portfolio and it passed. WM did fall sharply but then gained back all the losses. The stock was later under some pressure while many other stocks soared amid the improved tariff news and the “risk on” mood. But WM regained its footing and recently made a new high before pulling back somewhat in June. WM took a back seat as cyclical stocks rallied after the positive jobs report. WM should continue to be solid in just about any kind of market. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.1%) – The regulated and clean energy utility stock was strong but has since found more trouble. The stock initially pulled back on the spike in interest rates from the U.S. credit downgrade. Then, the clean energy industry took a hit as the new bill in Congress passed the House and promises to strip subsidies for clean energy. The huge subsidies had given support for 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. It should endure this storm in decent shape. In fact, NEE has already made up all the losses. But the news cycle on this may have more legs and the rating will be reduced to HOLD until the damage seems complete and NEE maintains the recent upward momentum. 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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