Investors Sense a Soft Landing
The market is making some noise so far this year. And in a good way. The S&P 500 is 7.7% higher and the Nasdaq is up 14.7% YTD. Is this real, or just another head fake?
The rally is being prompted by increasing optimism of a soft landing, where inflation falls without the economy falling into recession. Previously pessimistic pundits are now embracing the possibility. And there is some evidence to back up the soft-landing scenario.
Inflation is clearly on the decline, from 9.1% in June to 6.5% in September. Few expect the Fed to raise the Fed Funds rate much past 5%, and it’s already at 4.75%. Meanwhile, the economy remains strong, with 2.9% GDP growth in the fourth quarter and 517,000 jobs created in December.
A soft landing is possible. In fact, it seems a lot more possible than it did a couple of months ago. But there are some serious risks. A continuing strong economy will add to inflationary pressure and the Fed may have to raise rates higher and for longer than currently expected. The inflation/hawkish Fed conundrum that caused the bear market may continue.
It’s also true that we don’t know how much damage the Fed has done yet. Rate hikes take a long time to ripple through the economy. It may be several months before the full effect of the rate hiking the Fed has done already will be realized. We could be headed for a steeper downturn than the market currently expects.
We’ll see how things unfold. I like to hope for the best but prepare for the worst. For that reason, the portfolio remains defensive with mostly conservative position and covered calls sold into this rally.
Recent Trade Activity
January 20
OKE January 20 $65 calls - Expired
XEL January 20 $65 calls – Expired
ONEOK, Inc. (OKE) – Called
Xcel Energy Inc. (XEL) – Called
January 24
Purchased Medical Properties Trust, Inc. (MPW) - $13.22
Sold V March 17 $220 calls at $12.00 or better
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.3%
The infrastructure juggernaut reported 12% funds from operations (FFOs) per share growth in 2022 and 10.9% in the fourth quarter versus last year’s comparable periods. The company is benefiting as recent acquisitions come online, particularly a big acquisition of North America midstream energy company Inter Pipeline. While the average S&P 500 company reported earnings shrinkage of more than 5%, Brookfield continues to deliver. BUY
Global Ship Lease, Inc. (GSL)
Yield: 7.7%
Things are looking up for this container shipping company. GSL is up over 16% YTD and at the highest price since the summer. The longer-term supply/demand dynamic is positive for container shipping and the stocks may be in a longer-term bull market. Plus, the opening of China could also be a positive catalyst for shipping activity and rates in the near term. The company announces fourth-quarter earnings this week and hopefully gets and additional lift from that. HOLD
Intel Corp, (INTC)
Yield: 4.8%
The recent bad news suggests that the stock has already bottomed. Earnings were once again hideous. Revenues plunged 32% for the quarter versus the prior year and demand for PC and server chips is falling. Global PC (personal computer) shipments fell 28.5% in the quarter. Intel also said next quarter will be worse. But the stock is at the same level as before the bad earnings. It suggests that the market already priced in a rotten first half. The company is employing a massive cost-cutting program and new products should also help the bottom line in the second half of this year. HOLD
Medical Properties Trust, Inc. (MPW)
Yield: 9.0%
This high paying and recession-resistant hospital REIT has pulled back a little this past week after rallying strongly in January. But the stock still remains in a technical uptrend that began in October. The dividend is safe, and the operational performance of the company is solid, with better than 30% earnings growth last quarter. MPW is dirt cheap with a high yield and a recession-resistant business. This should be a good year. HOLD
Realty Income Corp. (O)
Yield: 4.4%
The legendary income REIT isn’t exciting, but it tends to deliver as advertised over time. O has delivered a positive return over the last year while the overall market is down. O also finally eclipsed the elusive 65 per share level. Hopefully the stock can break out and run for more. But much depends on the overall market. A down market could spoil the party. But this is a popular and defensive income stock that should hold its own in the event of a recession. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 28.7%
SBLK had been sort of bouncing around in a certain range for many months but has recently broken out to the highest level since August. Lower shipping rates and a slower global economy have already been factored into the stock and it is likely still the early innings of a multi-year positive cycle for shipping. The shipping company may have already seen the bottom with better times ahead. Star Bulk reports earnings next week and can hopefully bet a boost. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.2%
Qualcomm reported earnings yesterday. And they were bad. Net income fell 33% and revenue was down 12% from the same quarter last year. It also appears that next quarter won’t be much better as smartphone sales continue to plummet in this economy. But the stock is only down less than 1% after the news. That suggests that this news was already factored into the stock and the market is looking towards improvement in the second half of the year. QCOM is up over 22% YTD. It has also cracked the 130 per share level for the first time since September. HOLD
Visa Inc. (V)
Yield: 0.8%
The payments processing company stock has been loving the market rebound. It’s always among the first of its kind to recover when the market situation improves. V is up over 10% YTD and is now at the highest level since early April. V held up remarkably well last year with a -3.4% return and should thrive in the likely rebound this year. However, there is a strong chance the market gets bumpy again before it delivers a rally out of this bear market. That makes this a good point to sell a call and generate a strong income while the going is good. HOLD
The Williams Companies, Inc. (WMB)
Yield: 5.4%
WMB has been a bit of a dud lately. It held up much better than its midstream energy peers when the sector took a hit in the fall. But it has been a laggard since the sector performance improved. The market seems to like its defensive characteristics best and it tends to rally with the more defensive plays. That could be a great thing if the current rally rolls over. It pays a big income and thrives amid inflation and recession. Prospects for this year remain excellent. BUY
Active Covered Call Trades
Sell O February 17 $62.50 calls at $3.00 or better
The stock has certainly broken out to a new level recently and currently sells well above the 62.50 per share strike price at over 68 per share. At this point it appears likely to be called. But this is a risky market and a lot can change in the next couple weeks. We locked in a good income return regardless of what happens.
Sell V March 17 $220 calls at $12.00 or better
V has been looking very good, as I mentioned above. It broke through the 230 per share level and is still near its highest point in over nine months. But this is a cyclical stock that could pull back if the economy weakens and the market sours on cyclical stocks.
CIA STOCK PORTFOLIO | |||||||
Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $135.02 | NA | 2.17% | 3.79% |
Visa Inc. | V | 12/22/21 | $217.96 | $230.13 | NA | 0.78% | 6.40% |
Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.37 | NA | 8.34% | -17.71% |
Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $22.18 | NA | 28.70% | -20.26% |
Intel Corporation | INTC | 7/27/22 | $40.18 | $30.32 | NA | 5.02% | -22.78% |
The Williams Companies | WMB | 8/24/22 | $35.58 | $32.08 | $38.00 | 5.62% | -7.46% |
Realty Income Corporaton | O | 9/28/22 | $60.37 | $67.59 | $63.00 | 4.41% | 14.19% |
Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $43.57 | $46.00 | 3.33% | 3.49% |
Medical Properties Trust | MPW | 1/24/23 | $13.22 | $12.79 | $15.00 | 8.97% | -3.25% |
EXISTING CALL TRADES | |||||||
Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
O Feb 17 $62.50 call | O230217C00062500 | Sell | 12/28/22 | $3.00 | $4.40 | $3.00 | 4.97% |
V Mar 17 $220 call | V230317C00215000 | Sell | 1/24/23 | $12.00 | $13.00 | $12.00 | 5.51% |
as of close on 2/03/2023 | |||||||
SOLD STOCKS | |||||||
Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20//2023 | $65 | 4.67% |
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./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $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% | |
QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% |