June 4, 2025

Stocks Take a Break

The market rally has gotten stuck in the mud for now. It will likely take some good news to really get it moving higher again.

Stocks have hugely recovered from the tariff Armageddon selloffs of early April. The index made up all that tariff ground and the S&P came within just a few percent of the high. But the rally has stalled over the past couple of weeks as positive headlines have been in short supply.

The sticky issue to start the week is increasing trade tensions with China. A war of words is escalating between the two governments and threats are being made by both sides. It is being reported that President Trump will speak with Chinese President Xi today or later this week. Hopefully, the two leaders will bring down the temperature.

Investors seem to have determined that these tariff issues won’t cause a disaster. Sure, there may be more headlines that the market doesn’t like. But tariffs shouldn’t wreck the bull market. The “no disaster” trade has played out though, and the market will likely need more good news to move meaningfully higher from here.

There’s also the economy. Once we get beyond the tariff uncertainty, investors will likely focus on the economy. It has been slowing but there are mixed signals. At this point it’s anybody’s guess what kind of economy we will have for the remainder of this year.

Things could line up in a bullish fashion. They usually do. But there is a lot of uncertainty still buzzing around. The near-term direction of the market should be dictated by headlines regarding tariffs and the economy.

Meanwhile, portfolio position and nuclear power provider Constellation Energy (CEG) made news this week. The company inked a deal with Meta (FB) to provide power for its data centers from its Clinton, Illinois Plant. The stock was up big on Tuesday morning but leveled off later in the day. But the news reinforces the notion that AI, data centers, and electricity demand are alive and well. And relevant stocks are likely to reassert themselves in the market.

Recent Activity

May 7
Eli Lilly and Company (LLY) – Rating change “BUY” to “HOLD”
AbbVie Inc. (ABBV) – Rating change “BUY” to “HOLD”

May 14
Purchased Oracle Corporation (ORCL) - $162.95
McKesson Corporation (MCK) – Rating change “BUY” to “HOLD”
SOLD UnitedHealth Group, Inc. (UNH) – $308.01

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

High Yield Tier

AGNC Investment Corporation (AGNC – yield 16.3%) – In the last earnings report the REIT reported wider spreads as the 10-year Treasury rate has moved higher again, and the Fed is likely to cut the Fed Funds rate several times this year, perhaps beginning in June. It also posted a solid total return in the first quarter. But the stock got manhandled in the market tumult of early April. While AGNC has moved up from the low it still hasn’t fully recovered to the levels of earlier this year. AGNC can’t stand up to a market like we’ve had recently with indiscriminate selling. But it should continue to rebound as the market recovers and likely trends higher. HOLD

Brookfield Infrastructure Partners (BIP – yield 5.2%) – BIP has made a solid move up from the recent bottom over the past month. The stock is now near the highest level achieved earlier this year. BIP should have been set up for strong relative performance in the recent market volatility. The problem is that interest rates spiked higher at the same time, which is bad for an MLP because it increases borrowing costs and narrows profits. But it has generated traction of late and is now up over 6% YTD. And the business is sound. It’s entirely possible that BIP can make a run toward the 52-week high and beyond, 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 5.6) – 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. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.9%) – The midstream energy partnership is doing OK after two stellar years. It’s up about 3% YTD. EPD is still down from the beginning of April and has not regained those losses yet, unlike the overall market. But EPD was near the 52-week high before the trouble started. Enterprise has two major projects coming online this year representing $6 billion in investment that should grow the top and bottom lines. The distribution coverage is still a stellar 1.7 times and Enterprise continues to retain earnings for future growth. (This security generates a K1 form at tax time.) BUY

FS KKR Capital Corp. (FSK – yield 13.3) – This Business Development Company (BDC) is doing relatively well under the circumstances. FSK has delivered market-beating returns for the past one-, three-, and five-year periods. It’s 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. FS is very economically sensitive as it has a portfolio of small businesses. If the economy holds up the stock should do well. But it will be sold if the economy shows signs of turning south. HOLD

Main Street Capital Corporation (MAIN – yield 7.6%) – The BDC reported basically solid earnings with higher net asset value (NAV) and higher distributable income. Although earnings slightly exceeded expectations, they were slightly lower than last year because of rising costs. The investment outlook is cautious because of rising expenses and tariff concerns, like most other companies. MAIN has delivered a solid return since being added to the portfolio last year. The maintenance of this portfolio position will depend on the economic news going forward. HOLD

ONEOK Inc. (OKE – yield 5.0%) – This midstream energy company stock performance has been disappointing. OKE is down over 15% YTD while the overall energy sector is only down 5% 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 soon, but I’ll watch it closely. HOLD

The Williams Companies, Inc. (WMB – yield 3.3%) – This solid midstream energy company stock has been bouncing around since January. That said, it’s still up over 13% YTD in a tough year for energy and midstream companies after it had two stellar performance years in 2023 and 2024. WMB has also managed to be within a dollar 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. Regardless, it should be a solid holding the rest of the year. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.5%) – ABBV is hanging 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. Health care is in the crosshairs right now. 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 they are 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 going great as the Humira expiration pain is behind it and earnings are growing again. HOLD

Ally Financial Inc. (ALLY – yield 3.4%) – This online banker has been bouncing around since late last summer. There was a selloff in April and then a quick recovery. But ALLY hasn’t really been able to generate meaningful upside traction. 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. Ally primarily deals with auto loans, which are cyclical. The jury is out on the economy, and consequently the direction of ALLY. As long as the economy stays solid and the worst of the tariff uncertainty stays behind, ALLY should be strong and make up for some lost time. HOLD

Broadcom Inc. (AVGO – yield 1.0%) – This superstar AI company stock has been off to the races in the better market. AVGO soared late last year and then crashed in the tariff tumult. The market tended to pick on the previous high-flyers and the selling in AVGO got way overdone. It has soared back near the high in the last couple of months. The stock was taken down by external factors like a crashing market and the correction in the tech sector. But AVGO has gone higher for a good reason, soaring AI revenues. Once the panic dissipated, investors flocked right back to AVGO. The company reports earnings later this week. Recent earnings reports have boosted the stock. We’ll see what happens this time. BUY

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 production by building more export facilities. Several of those projects were recently completed and should begin to add to the bottom line. Cheniere also announced a deal last week to buy natural gas from Canadian company Canadian Natural. LNG was solid in the tough market and should trend higher over the rest of the year. HOLD

Constellation Energy Corporation (CEG – yield 0.5%) – Constellation announced another big energy deal on Tuesday. 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 in tech companies purchasing carbon free nuclear power in order 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 jumped over 9% in early trading but pulled back by midday on Tuesday.

This adds to recent positive news for the industry when President Trump signed a series of executive orders designed to accelerate nuclear power. While demand for carbon free electric power is huge with the demand growth for AI from big tech, it takes forever to build new ones. The new executive orders seek to dramatically shorten the time frame and encourage more nuclear power. The Constellation CEO was present at the signing. This encourages more new deals from big companies to provide nuclear power for AI plants and Constellation is king. 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 in negative territory for the year and 13% below the high. Yet it has returned more than 55% 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 0.8%) – LLY is a juggernaut that’s been stuck in the mud. It’s down more than 20% from the 52-week high and has returned -8% 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. 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 reported earnings that beat expectations. The stock has returned a whopping 25% YTD while the S&P is up less than 2% over the same period. 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 1.2%) – This technology stalwart has a strong growth catalyst ahead with data centers and AI. OCI revenue grew 49% last quarter. The company also reported that it had $130 billion in order backlogs, a 63% increase from last year’s quarter. There isn’t nearly enough current data center capacity to meet demand. Oracle opened its 101^st Data Center Cloud Region last quarter. Management intends to double data center capacity this fiscal year and triple it by the end of next fiscal year. The company plans to eventually operate between 1,000 and 2,000 of these data centers. Oracle also reports earnings next week. Hopefully, the stock will get a boost. BUY

Qualcomm Inc. (QCOM – yield 2.4%) – Last month’s earnings report was a clunker, and QCOM fell 8.7% on the day of the announcement. The earnings were mixed with sales growing 17%, driven by strength in the automotive and IoT segments. But handset revenues grew only 12% and inventories rose. Also, revenue guidance for next quarter was slightly below the market’s expectations. Investors want to see strong handset sales, which is the core of the business and the area that could drive strong growth. And it didn’t see that. But the results were still solid, and those stronger sales should come later this year. Meanwhile, QCOM is benefitting from the tech recovery and has been stronger over the last month. HOLD

Toll Brothers, Inc. (TOL – yield 1.0%) – This beleaguered homebuilder company stock just can’t seem to get anywhere. It did recover from the lows of April but it’s still well below the price level from earlier this year. As with ALLY, there’s just too much uncertainty about the near-term direction of the economy. It also doesn’t help that mortgage rates are staying stubbornly high. We will see how the economic news plays out. The longer-term supply/demand dynamic is hugely favorable to this company, and it will 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 of 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 has been moving higher again and just made a new all-time high. WM should continue to be solid in just about any kind of market. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.3%) – 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 last week 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 have 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 has been reduced to “HOLD” until the damage seems complete and NEE resumes some upward momentum. HOLD

USB Depository Shares (USB-PS – yield 6.0) – 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 when the market stabilizes. The risk is spiking interest rates, which seems unlikely at this point. 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 good. BUY

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