May 7, 2025

Big Gains Put to the Test

The market just had a big leg higher. Last Friday the S&P 500 concluded an epic nine-day run of positive gains, the longest such streak in more than 20 years. The index rose by more than 10% during the streak. What’s going on?

The rally began after President Trump indicated a de-escalation of the trade war with China. There are ongoing negotiations with the other trading partners during the 90-day pause initiated on April 9. A perception is building that the worst of the tariff uncertainty is behind. Stocks also got a boost from earnings and economic news.

Six of the big tech companies reported solid earnings and four raised guidance for the year; the other two don’t issue guidance. That’s a positive for the market’s largest sector, which has been holding the index down most of the year. The economic news was also important.

First-quarter GDP came in at -0.3%. Initially, the number was troubling as it was below expectations and marked the first quarterly contraction since 2022. But the number was skewed and reduced by an unusually high amount of imports. Artificially higher imports lowered GDP because businesses were front-running the tariffs. Without the skewed import numbers, GDP would have been easily positive. Then the jobs report came in much better than expected.

The reports gave the economy a pass, for now. That’s important because the economy could indicate further trouble beyond the tariff uncertainty. There is still concern but the market isn’t perceiving a big problem. Meanwhile, stocks have shown strong pent-up upside when tariff uncertainty subsides, with the nine-day rally and the 9% one-day jump on April 9.

Things have certainly improved. The S&P has made up all the losses incurred after “liberation day” on April 2 when large tariffs were proposed on most U.S. trading partners. We might not be out of the woods yet. A negative headline could still roil the market at any time. It seems unlikely that the market can continue to run back toward the high and beyond until there is greater clarity on tariffs than there is now.

Stocks may pull back somewhat or go sideways for a while. But a bear market now seems less likely as stocks appear to be setting up for a positive run over the rest of the year.

This week the Fed is expected to keep rates unchanged at its May meeting. But investors will scrutinize comments regarding the state of the economy and plans for future rate cuts. The Fed statements may be the next market mover.

Recent Activity

April 9
Ally Financial Inc. (ALLY) – Rating change “BUY” to “HOLD”
Qualcomm Inc. (QCOM) – Rating change “BUY” to “HOLD”

April 16
AbbVie (ABBV) – Rating change “HOLD” to “BUY”

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

High Yield Tier

AGNC Investment Corporation (AGNC – yield 16.4%) – 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 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 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 come back when the market stabilizes. Performance has been strong so far in the market recovery, despite the recent pullback. HOLD

Brookfield Infrastructure Partners (BIP – yield 5.6%) – 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. BIP is still slightly in negative territory for the year so far after two crummy years before this. But the business is sound. And yet, the stock isn’t delivering. It’s off the lows but it’s still miles below the early 2022 high. BIP will continue to be held for now as there is a strong chance interest rates trend lower over the rest of the year. (This security generates a K1 form at tax time.) HOLD

Cheniere Energy Partners, L.P. (CQP – yield 5.5%) – This NGL export partnership has held up very well under the circumstances. Sure, it plunged in April, along with most stocks. But it has still returned about 14% YTD while the market is down 4% over the same period. 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. The partnership reports earnings later this week. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.8%) Earnings – The midstream energy partnership reported earnings last week that were basically solid and the stock is up very slightly since the report. Operational income increased and distributable cash flow rose 5% over last year’s quarter as the partnership posted record natural gas processing and pipeline volumes. But profits were limited by reduced refined product margins as energy prices fell.

Natural gas is resilient, but the small part of the business with commodity price exposure is under pressure. Looking forward, 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 14.3%) – This Business Development Company (BDC) has been trending higher since the middle of April after falling sharply from the high. The price action has very much tracked the overall market. The BDC is cyclical, having a portfolio of small companies, and it suffers when there is angst regarding the economy. The economy got a bit of a pass last week, which should keep the stock out of trouble for now. If a recession is avoided or the economic narrative doesn’t get ugly, FSK should be OK. It really pays you to wait things out with a better than 13% yield. HOLD

Main Street Capital Corporation (MAIN – yield 7.9%) – As a BDC, this story is very similar to that of FSK. Like just about everything else it got pummeled early last month and has rebounded since. Main’s portfolio of companies not only makes high interest loans, but it also takes equity stakes. The equity stakes are the primary reason the total returns have been better than just about every other BDC. If the economy hangs on the BDC should continue to deliver but if a slowing economy becomes an increasing problem, we’ll have to reevaluate. The BDC reports earnings this week that could provide more info on the trajectory from here. HOLD

ONEOK Inc. (OKE – yield 5.1%) Earnings – The midstream energy company reported earnings last week that were mostly positive but the market didn’t approve and the stock fell about 6%. Revenues exceeded estimates but earnings missed, mostly because of assets divested in December of last year. But the company reaffirmed guidance for 2025 and 2026 which includes an earnings growth jump to 15% as new assets come on line, 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. But this isn’t a market environment that takes kindly to earnings misses. HOLD

The Williams Companies, Inc. (WMB – yield 3.3%) Earnings – The midstream energy company delivered another solid earnings report to complement the impressive resilience of the stock. Earnings per share is up 8% and cash flow from operations grew 16% over last year’s quarter. The company also raised guidance for 2025 as project expansions come online. Despite the tumultuous market environment, WMB is within one dollar per share of the high and has returned 13% YTD. 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

Rating change “BUY” to “HOLD”

AbbVie (ABBV – yield 3.4%) – The biopharmaceutical company stock looks OK. ABBV did have a sharp drop last month amid the market tumult. It typically does pull back after a surge to new highs and the tough market expedited that retreat. It’s over with. Meanwhile, the company is moving beyond the Humira patent expiration, which had been holding the stock back. Earnings beat expectations and guidance was raised for 2025.

However, there is still uncertainty regarding tariffs and the administration’s pledge to enforce international reference pricing, which lowers U.S. drug prices to those charged internationally. Immunology drugs Skyrizi and Rinvoq grew sales by 65% in the quarter with revenue of $5.1 billion, which already replaces peak Humira revenues. The trajectory is great but there could be some externally caused issues ahead. ABBV will be lowered to a “HOLD” until the threats either materialize or subside. HOLD

Ally Financial Inc. (ALLY – yield 3.6%) – 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. While ALLY has come off the recent bottom, it has not mustered strong upside traction because the news on the economy hasn’t been clear. If the economy deteriorates toward a recession or close to it, the stock will have more trouble. It deals primarily with auto loans, which are highly cyclical. But the economy is also showing signs of resilience and could surprise to the upside, and ALLY will benefit. ALLY should have strong upside when the environment permits. HOLD

Broadcom Inc. (AVGO – yield 1.2%) – This superstar AI company certainly appears to have plenty of pent-up upside in a friendlier market. Over the epic nine-day rally in the market, AVGO soared 23%. The stock was a high flyer during the good times and took a huge hit in the sector and market selloff. But AVGO was dragged down by the external environment. The company itself is still doing gangbusters. It was flying for a good reason, skyrocketing earnings. The market will change, if it isn’t doing so already, and technology will get hot again. When that happens, AVGO should once again take off and make up for any lost time. BUY

Cheniere Energy, Inc. (LNG – yield 0.9%) – The liquid natural gas exporter stock has been spectacular under the circumstances. LNG had been strong ever since the November election as investors anticipated more natural gas exports, increased domestic production, and friendlier regulations. LNG did take a big dip last month as the market ravaged everything, but it has made up all those losses already and is one of the few stocks that delivered positive returns in the month of April. Of course, we may not be out of the tariff woods yet and there could be more trouble ahead. But LNG is solid in all but the worst markets and should resume the upward trend when the market embarks on a sustained rally. HOLD

Constellation Energy Corporation (CEG – yield 0.9%) Earnings – Things are looking good for this nuclear provider of electricity. Constellation reported earnings Tuesday morning that were basically very positive. The company beat on revenues and missed slightly on earnings expectations with 10% revenue growth and 18% earnings growth from last year’s quarter. But the company reiterated 2025 guidance, which is bucking the market trend. A statement from management could be the most important information from the report.

As electricity demand soars because of AI data center expansion, electric cars, and increased manufacturing, companies prioritize clean energy. Constellation inked two huge recent deals (the Microsoft (MSFT) deal and the Calpine acquisition) to deliver a high level of earnings growth in the years ahead. Management said in the report that the company “made tremendous progress on new power agreements that we expect to announce soon.” The two previous agreements propelled the stock much higher. CEG also rose over 20% in the recent nine-day rally. 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 sustained decline since late last year. Although DLR is still far below the high made in late November, it has still returned 50% since being added to the portfolio less than 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. HOLD

Rating change “BUY” to “HOLD”

Eli Lilly and Company (LLY – yield 0.7%) Earnings – The superstar pharma company reported earnings last week that beat expectations with 29% EPS growth and a 45% revenue increase over last year’s quarter. The weight loss drugs Mounjaro and Zepbound continued to kill it with combined revenue of over $6 billion for the quarter. Sales of Zepbound exceeded those of the main competitor, Wegovy. Lilly did slightly reduce earnings guidance for the year because of stock losses. Earnings were generally well received with no major upside catalyst but nothing to interfere with the positive story that propelled the stock higher, especially strong trial results for an oral weight-loss drug that could be a game-changer in a huge market.

But bigger news caused shares to tumble 10% on Thursday. CVS (CVS) selected Novo Nordisk’s (NOVO) weight loss drug Wegovy as its preferred option to offer customers. Investors fretted that the move could limit the sales growth for Lilly’s Zepbound. However, the move only affects a relatively small number of customers and investors likely realized the overreaction as the stock was nearly 4% higher on Friday. More concerning is the imminent threat of pharmaceutical tariffs. Even more of a threat is the administration’s pledge to enforce international reference pricing, which would lower prices and profits. There could be some turbulence in the stock in the weeks ahead. The rating is lower until the headline risk subsides. HOLD

McKesson Corporation (MCK – yield 0.4%) – What tariff trouble? What treacherous market? MCK has just continued trending higher all year. It was even up for the month of April and has returned 24% YTD in a treacherous market. It is also one of the very few portfolio stocks still trading near the high. The stock had been knocked down last summer and fall after the company reported supply chain issues with weight loss drugs. But those problems are behind the company. MCK has resumed its old habit of slowly going higher and higher as it deals in a market that grows all by itself because of the aging population. It should continue to be great in any market. BUY

Qualcomm Inc. (QCOM – yield 2.6%) – Last week’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. QCOM is a volatile stock that’s had 15 one-day moves of over 5% in the last year. The market was disappointed, but the move doesn’t indicate a game-changer. 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 decent, and those stronger sales should come later this year. HOLD

Toll Brothers, Inc. (TOL – yield 1.0%) – This beleaguered homebuilder company stock is showing some signs of life. TOL has moved more than 20% higher from the recent low. The already beaten down stock had held up well initially in the down market, but the 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 rebound eventually. HOLD

UnitedHealth Group Inc. (UNH – yield 2.1%) – The sorry performance continues. The company reported earnings earlier this month that missed estimates and lowered earnings guidance for 2025. The market wasn’t happy about it and UNH crashed more than 22% in one day, the worst day for the stock since 1998. The stock has not bounced back from the carnage, even though the market has been booming over the past week. It could be that investors focused on stocks that may have a faster upside and neglected UNH, which could get a bounce if the market retreats this week after the strong 9-day rally. I’ll stick with it for a little longer. 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 has since gained back nearly all of the losses already. WM is also one of the few portfolio stocks that is trading close to the high. You can depend on garbage. As market uncertainty swirls, investors are attracted to safety and the relative performance of stocks like WM. Of course, this stock also has a good track record in bull markets. It’s a good holding if the market turns around too. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.4%) – The combination regulated and clean energy utility reported earnings that beat on revenue and missed on earnings. Revenue showed solid 9% growth, nearly double the industry average. But earnings fell far short due to higher costs. The lower earnings tempered any enthusiasm, and the stock has traded flat since the report. NEE had been solid until the market really rolled over. But NEE should have less downside than the overall market from here. And it should be a desirable stock when investors demand more safety. NEE has also performed well in strong markets. BUY

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 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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