A Souring Interest Rate Narrative
This market has been resilient. But that resilience is being severely tested. The next couple of weeks should tell us the near-term direction of stocks.
The S&P rallied higher for five straight months. That’s long in the tooth for any rally. The market is down so far in April and the story is changing for the worse.
Sticky inflation has been wrecking the party. Inflation has been ticking up again so far this year. March CPI was 3.5%, up from 3.1% a few months ago. If you’re older, you may remember double-digit inflation and think 3.5% isn’t a big deal. But it is. They don’t measure inflation the same as they did in the ‘70s. If they did, the current inflation would be close to 8% from estimates I’ve seen. And this is at the end of the steepest Fed rate hiking cycle in decades.
Wall Street had been expecting falling rates and a still-solid economy. Now, expectations are falling to continued high rates and a solid economy. We’ll see how far stocks can rally from here without falling interest rates. In any event, the souring interest rate narrative has probably already put the kibosh on the recent rally.
The news isn’t dire though. As long as there isn’t more disturbing inflation and rates rising near the old highs or beyond, or the economy doesn’t fall into recession, the market should be okay over the rest of the year. The market is very capable of finding a way to be happy in the absence of the two extremes.
The end of the rally isn’t a bad thing. A breather is normal and healthy. We’ll see if there is a more disturbing selloff or just a minor consolidation. In the meantime, the income continues to roll in from dividends and covered calls.
Past Month Activity
March 15th
ABBV March 15th $160 calls at $7.00 – Expired
AbbVie Inc. (ABBV) stock – Called
March 28th
MPC March 28th $165 calls at $10.00 – Expired
Marathon Petroleum Corporation (MPC) stock – Called
Portfolio Recap
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.2%
This one-of-a-kind life science property REIT continues to be at the mercy of the latest interest rate thinking, along with most other conservative dividend stocks. Since the recent leg of interest rate consensus has been negative, ARE has taken a hit. But I’m generally positive going forward as interest rates have likely already peaked. ARE is a great income stock selling at the low end of historical valuations while the company is consistently growing revenues and profits from its niche properties. I’m still expecting a good year for ARE and a solid income. BUY
American Tower Corporation (AMT)
Yield: 3.6%
AMT has had the same interest rate-related gyrations as ARE. And lately, that has been a bad thing. But the stock had been acting badly even before the interest rate consensus turned ugly after the company cut the dividend by 4.7% to focus on debt reduction. It sounds worse than it is. It just lowered the dividend to the third-quarter level, which was the third quarterly increase for 2023. But the current dividend is still higher on a year-over-year basis. The reversal of the fourth-quarter hike is a headscratcher that shouldn’t affect the stock’s trajectory over the course of the year. BUY
Brookfield Infrastructure Corp. (BIPC)
Yield: 4.6%
This is a great company with a great business that has a long track record of outperforming the market. But it has floundered the past two years as interest rates rose to multi-decade highs. However, BIPC didn’t pull back with other interest rate-sensitive stocks earlier this year. It just kind of went sideways instead. But the situation has changed over the past week and BIPC has also plunged. The longer-term prognosis is still positive as rates have likely already peaked and Brookfield has some of the most defensive revenues possible and continues to deliver strong operational results. BUY
Enterprise Product Partners L.P. (EPD)
Yield: 7.1%
Even this midstream energy juggernaut has shown some weakness over the past week, although not nearly as much as its peers. Energy stocks are still strong and in a good position as a hedge against increased tensions in the Middle East, as that will likely raise the price of oil and the energy sector. But this past week has been more about interest rates. Rising rates will hurt almost all stocks, but EPD has shown a lot more resilience than most. The company should deliver solid growth this year and that massive distribution is extremely well supported. (This security generates a K1 form at tax time). BUY
Main Street Capital Corporation (MAIN)
Yield: 6.1%
Although this newest portfolio addition is currently selling near the 52-week high, it is still reasonably priced at less than 1.6 times book value and with most other valuation measures below the five-year average. It has also shown resilience in the tough market over the last week with a safe and high dividend every single month and a strong possibility of supplemental dividends over the course of the year as well. MAIN should also provide strong total returns over time generated by its largely successful small-business portfolio. BUY
NextEra Energy, Inc. (NEE)
Yield: 3.3%
While this past week has been ugly for most conservative dividend stocks, the performance of NEE has been quite encouraging. The stock pulled back just a little and is still at about the same price it was at the beginning of this month. NEE is still in a strong uptrend that began at the beginning of March. I guess it is so beaten down that downside volatility is limited. NEE had been a superstar performer before inflation and rising interest rates. It provides both safety from its best-in-class regulated utility business and growth from its considerable clean energy business. BUY
Qualcomm Corp. (QCOM)
Yield: 1.9%
After a dazzling performance late last year and early this year, QCOM has been bouncing around sideways since early March. Qualcomm is secretly one of the best semiconductor and AI stocks to own. It had been held back by cyclicality, both in semiconductors and smartphones. But the negative cycle is ending, and AI is coming to mobile devices. QCOM cooled off after a huge rally. A breather would probably be a healthy thing for the stock. But the rest of the year looks strong as Qualcomm is also introducing new AI chips for PCs and smartphones and is well positioned for the next phase of the AI craze. BUY
Realty Income Corp. (O)
Yield: 5.9%
This legendary income stock is still floundering. It just hasn’t perked up in the past couple of months like many of its peers have. It’s just moved sideways instead. It is looking like O will be stuck in the mud until interest rates really move lower, which may or may not happen later this year. But the monthly dividend has been raised every year since 1969. The last two years have been among the worst in this stock’s history, which makes it dirt cheap ahead of an environment that will get better eventually. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.0%
Like EPD, this midstream energy company stock has been strong all year but a little weaker over the past week in sympathy with the overall market. WMB has broken out since the middle of February and the latest pause may be only a temporary setback as the energy sector is still strong. It’s a stable, high-yield stock, and the company should deliver solid and dependable earnings in just about any economy. Business remains solid and not dependent on commodity prices. It pays a well-supported dividend, and recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. BUY
Xcel Energy Inc. (XEL)
Yield: 4.1%
The alternative energy utility has been slowly recovery from the price shock last month after it was reported that Xcel could be held liable for damages for the raging Texas wildfire. Xcel has admitted that its equipment was likely involved in igniting the blaze. This weird development is also ongoing, and the scope of the damage is still not known. NEE was downgraded to a HOLD until there is more clarity on the matter. The stock has certainly stabilized and it is encouraging that XEL barely budged last week when the environment had been so damaging for most of its peers. HOLD
Existing Call Trades
Sell QCOM April 26th $170 calls at $10.00 or better
The calls still have about ten days until expiration and the stock price is near the strike price. The market has gotten much more questionable, and QCOM could easily close below the strike price at expiration. It looks like the rally is over and we locked in a great income and possibly a strong total return.
Sell WMB May 17th $35 calls at $2.00 or better
Even WMB has been teetering a bit in this market environment. There is still a month to go before expiration and anything can happen. If the market rolls over, we’ll keep a great stock and sell more calls later. If not, we secured a great income and we still own EPD in the midstream energy space.
Current Recommendations
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $121.94 | $140.00 | 4.17% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $179.20 | $220.00 | 3.62% |
| Brookfield Infrstr. Cp. | BIPC | 2/27/24 | $32.64 | $30.06 | $40.00 | 5.39% |
| Enterprise Product Ptnrs. | EPD | 2/27/24 | $27.61 | $29.05 | $30.00 | 7.09% |
| Main Street Capital Corp. | MAIN | 3/26/24 | $46.40 | $46.94 | $50.00 | 6.14% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $63.08 | $65.00 | 3.27% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $171.29 | $165.00 | 1.87% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $52.02 | $62.00 | 5.93% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $38.08 | $38.00 | 4.99% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $53.17 | NA | 4.12% |
| Call Trades | ||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better |
| QCOM Apr 26th $170 call | QCOM240426C00170000 | Sell | 3/12/24 | $10.00 | $5.30 | $10.00 |
| WMB May 17th $35 call | WMB240517C00035000 | Sell | 3/12/24 | $2.00 | $3.32 | $2.00 |
| as of close on 04/12/2024 | ||||||
| SOLD STOCKS | ||||||
| X | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100 |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95 |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14/22 | $24 |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20/23 | $65 |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 |
| Hess Corporation | HES | Called | 6/6/23 | $132.25 | 10/20/23 | $155 |
| Tractor Supply Company | TSCO | Sold | 9/26/23 | $203.03 | 11/28/23 | $200 |
| Digital Realty Trust | DLR | Called | 7/18/23 | $117.31 | 1/19/24 | $135 |
| Intel Corporation | INTC | Called | 7/27/22 | $40.18 | 1/19/24 | $43 |
| AbbVie Inc. | ABBV | Called | 7/25/23 | $141.63 | 3/15/24 | $160 |
| Marathon Petroleum Corp. | MPC | Called | 10/24/23 | $149.45 | 3/28/24 | $165 |
| EXPIRED OPTIONS | ||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% |
| BIP Oct 15 $55 call | in-the-money | 9/1/21 | $2.00 | 10/15/21 | $2.00 | 3.95% |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19/21 | $2.30 | 4.30% |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% |
| QCOM Sep 16th $145 call | out-of-money | 7/20/22 | $11.75 | 9/16/22 | $11.75 | 8.73% |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/23 | $12.00 | 5.51% |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | $10.50 | 4.82% |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | $1.25 | 5.00% |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | $3.20 | 4.92% |
| INTC $35 Oct 20th call | out-of-money | 9/8/23 | $3.78 | 10/20/23 | $3.78 | 9.41% |
| HES $155 Oct 20th call | in-the-money | 9/8/23 | $9.00 | 10/20/23 | $9.00 | 6.81% |
| DLR $135 Jan 19th call | in-the-money | 11/22/23 | $6.00 | 1/19/24 | $6.00 | 5.11% |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/23 | $3.50 | 1/19/24 | $3.50 | 8.71% |
| ABBV $160 Mar 15th call | in-the-money | 1/10/24 | $7.00 | 3/15/24 | $7.00 | 4.94% |
| MPC $165 Mar 28th call | in-the-money | 2/14/23 | $10.00 | 3/28/24 | 10 | 6.69% |
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