May 21, 2025

Tariffs Shmariffs

Last week was another up week for the S&P 500. The index has made up all the tariff Armageddon losses, it’s in positive territory YTD and is within 3% of the all-time high.

The market is flat so far this week. But after the big surge higher, it’s encouraging that the index isn’t pulling back. Perhaps stocks are consolidating a bit ahead of another move higher.

The market movement has been amazing. Only six weeks ago, the S&P 500 came within a whisker of a bear market, down 20% from the high on a closing basis. That was just last month. Now, the market is just a few up days away from a new all-time high. Why the extreme volatility?

Investors don’t understand the ramifications of tariffs and the current negotiations. Nobody really does. Tariffs haven’t been an issue in modern times. That creates uncertainty. Amid the confusion, the financial press was there every day to assure investors that disaster was looming, inflation would soar and the economy would be ruined. But that didn’t happen, at least not yet.

Uncertainty remains. A negative development could roil the market on any day. But investors appear, at this point, to believe the worst of the tariff uncertainty to be behind them while the economy is still in decent shape. That could change. But unless it does, the market is quite capable of cruising to new heights in the weeks and months ahead.

The hottest sector in the market recovery has been technology. It’s up over 21% in the last month. That sector had been dragging the S&P lower for most of this year. A consolidation was due, and now it’s done. The artificial intelligence catalyst is alive and well, and that sector is poised to soar higher. That’s why Oracle (ORCL) was added to the portfolio last week.

Things change fast. There could be more volatility ahead. But it looks at this point as though the tariff situation won’t be the end of this bull market after all.

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

High Yield Tier

AGNC Investment Corporation (AGNC – yield 15.7%) – The mortgage REIT reported earnings that beat consensus estimates. The stock price has moved higher since the report. The REIT reported wider spreads as the ten-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 total return for the stock of 7.8% in the first quarter. 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. Just like most of the market. 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 5% YTD. And the business is sound. The stock has moved back to the level it was at before the market sold down and can hopefully make a run toward the 52-week high and beyond. (This security generates a K1 form at tax time.) HOLD

Cheniere Energy Partners, L.P. (CQP – yield 5.6%) – This NGL export partnership reported earnings that exceeded expectations on revenue and earnings, on an adjusted basis, and reiterated previous guidance for 2025. Margins were higher as energy prices increased from last year. The stock price has basically stayed even since the report as the more beaten-down sectors rose in the recent market rally. CQP held up relatively well in the recent market tumult and is up over 13% YTD. Global natural gas demand remains strong and growing, and Cheniere is the largest U.S. exporter. Regulations are coming down and gas production is being ramped up. It should be in a strong position for the rest of the year after surviving this market in fine shape. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.6%) – The midstream energy partnership is back. After recovering from the market selloff in early April, EPD is having a stellar May, up about 11% so far. EPD appears to be moving back toward the 52-week high. 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. EPD is a reliable, high-income stock in an uncertain market. (This security generates a K1 form at tax time.) BUY

FS KKR Capital Corp. (FSK – yield 13.1%) – This Business Development Company (BDC) is getting a boost from the better market and improving economic outlook. It’s up over 7% so far in May and is positive for the year. FSK held up OK in the market turbulence. It also reported solid earnings with decent dividend coverage and a large amount of cash on hand. It’s very economically sensitive and will be sold if the economy shows signs of turning south. But if the economy hangs in there, it should continue to deliver going forward. HOLD

Main Street Capital Corporation (MAIN – yield 7.6%) – The BDC reported basically solid earnings with a recovering 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 of 33% since being added to the portfolio in March of last year, which is more than double the S&P return over the same period. The retention of this portfolio position will depend on the economic news going forward. HOLD

ONEOK Inc. (OKE – yield 4.9%) – This midstream energy company stock tends to be a lot more volatile than its peers. That was an unfortunate quality when the market was getting hammered. OKE took a further blow when it missed on earnings in an unforgiving environment. But it has come back, and it’s up about 5% since the beginning of the month and over 10% from the recent low. 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 with highly resilient and growing revenue and earnings in a great segment of the market. HOLD

The Williams Companies, Inc. (WMB – yield 3.4%) – This solid midstream energy company stock has not had a spike in May, but it endured the tough market better than its peers. WMB has about a 10% YTD return after a phenomenal 2024 when it returned 59% for the year. Williams delivered another solid earnings report with earnings per share up 8% and cash flow from operations going up 16% over last year’s quarter. The company also 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 3.5%) – While the rest of the market got great tariff news, healthcare is in the crosshairs. 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 going great as the Humira expiration pain is behind it and earnings are growing again. Immunology drugs, Skyrizi and Rinvoq, grew sales 65% in the quarter with revenue of $5.1 billion. The trajectory is great, but we’ll have to wait and see how these externally caused issues play out in the weeks ahead. HOLD

Ally Financial Inc. (ALLY – yield 3.3%) – This online banker has been bouncing around since late last summer. It was near the high point of the recent range, but the market took it down in the tumult of the last couple of months. The economically sensitive company stock is showing very strong upside in the better market and it actually has a positive YTD return. 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 has soared over 50% since the low of early April. The stock got destroyed in the market tumult because the market was cruel to previous high-flyers. But AVGO was hot for a good reason: soaring revenues. It was taken down by external factors, and the stock is taking off as those problems dissipate. The other big tech company earnings indicate that AI spending is alive and well. AVGO might get a further big boost when it reports earnings next month. BUY

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. Revenues were up 31% and earnings increased 6% over last year’s quarter. The company also reported stronger margins as prices increased from last year. The main issue is that recently completed projects are coming online and will continue to do so for the rest of the year. 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%) – WOW! The story is like that of AVGO. The market took down this previously red-hot stock more than it deserved, and it had huge upside when the external factors improved. CEG is up about 70% since the April low and about 30% so far in May. The company itself is doing great. Electricity demand is sure to grow. The two huge recent deals (the Microsoft (MSFT) deal and the Calpine acquisition) will deliver a high level of earnings growth in the years ahead, and there may be more new deals coming.

Constellation reiterated 2025 earnings guidance, which is bucking the market trend. A statement from management could be the most important information from the report. Management said in the report that the company “made tremendous progress on new power agreements that we expect to announce soon.” The previous two deals sent the stock soaring. HOLD

Digital Realty Trust, Inc. (DLR – yield 2.9%) – This data center REIT has rediscovered its mojo. DLR has soared 24% in the last month while most other REITs are still sucking wind. It reversed a decline sustained since late last year. Although DLR is still far below the high made in late November, it has still returned over 50% 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. HOLD

Eli Lilly and Company (LLY – yield 0.8%) – Healthcare is under some pressure. Lilly is a similar story to AbbVie at this point. The big news is the executive order tying U.S. drug prices to international prices. Initially, big pharma stocks sold off on the news. But they have rebounded as it is unclear how the pricing will work or if it will have a big effect outside of Medicare. There is also the tariff issue. The administration has already warned that it intends to target drugs for tariffs soon. The company itself is doing great. But there could be some turbulence in the near term as these external issues play out. That’s why LLY was downgraded to a “HOLD.” HOLD

McKesson Corporation (MCK – yield 0.4%) Earnings – The pharmaceutical supply chain company reported earnings that beat expectations last week, and the stock spiked over 6% in the following days. Revenue was up 16% and earnings jumped 14.7% from last year’s quarter. MCK was downgraded to a HOLD rating last week 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 stock that has been red hot and likely won’t be very negatively affected by the issue. However, if the healthcare sector suffers, it will likely affect MCK in the near term. HOLD

Oracle Corporation (ORCL – yield 1.2%) – The market and the technology sector have cooled off the past week. But artificial intelligence will continue to be a huge earnings catalyst well beyond tariffs and even economic news. Oracle has huge demand for its data centers and can’t build new ones fast enough to keep up. The demand should lead to stellar growth for years to come, and ORCL should certainly trend higher in the months and years ahead. BUY

Qualcomm Inc. (QCOM – yield 2.3%) – Last month’s earnings report was a klunker, 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 risen 10% in the last two weeks. HOLD

Toll Brothers, Inc. (TOL – yield 0.9%) – This beleaguered homebuilder company stock has reignited in the improved market. It’s up over 7% so far in May and over 20% from the recent low. The already beaten down stock had held up well initially in the down market, but then mortgage rates climbed again, and the stock fell back. It has climbed back and as long as the economic news remains OK, the recovery should continue. 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 nearly 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. Technology stocks were flying again, and the market has temporarily soured on “stodgy” stocks. But as things normalized WM gained back all the losses from earlier this month. WM will 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 was red hot, up 12% in two weeks as of Friday’s close. However, NEE did pull back on Monday as interest rates spiked because of the U.S. credit downgrade. As a utility, NEE is interest rate sensitive because conservative dividend stocks become less attractive to investors as fixed-rate alternatives pay more and because the cost of new debt rises for the company. But NextEra continues to grow earnings at a strong clip that greatly exceeds the industry average. NEE is already recovering from a down day on Monday and has the look of a stock that wants to go higher. BUY

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 seem unlikely at this point. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.1%) – 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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