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Income Advisor
Conservative investing. Double-digit income.

October 3, 2023

Even the temporarily averted government shutdown can’t do much for this market. The S&P 500 is now down more than 7% from the 52-week high and may be headed to correction territory, down 10% or more.

The main problem is high interest rates. The benchmark ten-year Treasury rate continues to rise and just hit a new 16-year high near 4.7%. The Fed’s recent statement that interest rates will remain higher for longer continues to demoralize investors.

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Interest Rates Wreak Havoc

Even the temporarily averted government shutdown can’t do much for this market. The S&P 500 is now down more than 7% from the 52-week high and may be headed to correction territory, down 10% or more.

The main problem is high interest rates. The benchmark ten-year Treasury rate continues to rise and just hit a new 16-year high near 4.7%. The Fed’s recent statement that interest rates will remain higher for longer continues to demoralize investors.

The hope had been that high interest rates would be temporary. It was thought that, with inflation falling sharply, the Fed would chill and interest rates would fall along with inflation. Markets were even pricing in Fed rate cuts later this year or early next. It is finally sinking in that those things will not happen, and the market is repricing.

Inflation is still a problem. It’s always tough to get rid of and these high energy prices will make it last longer. Perhaps a slowing economy will stop the recent ascent of interest rates and the market will rally. But the market is not in a good situation right now.

But earnings could come to the rescue. October ushers in a new earnings season. Better-than-expected results could potentially diminish some of the interest rate damage.

It’s hard to trust the market to rally to new highs over the next several months. That’s why the portfolio has used surges in individual stock positions to sell covered calls. Stocks near the 52-week high tend to generate high call premiums and assure a strong total return if the stock is called.

Recently, calls written on ONEOK (OKE), Brookfield Infrastructure Corporation (BIPC), and Visa (V) have resulted in those stocks being called. All of the stocks are trading below the price at which they were called. It makes sense in this uncertain environment to cash in and generate a high income and/or total return when the stocks are riding high.

Past Month Activity

September 8th
SOLD HES October 20th $155 calls at $9.00
SOLD INTC October 20th $35 calls at $3.76

September 15th
OKE Sep 15th $65 calls at $3.20 – Expired
ONEOK Inc. stock (OKE) – Called

September 26th
Sell DLR October 20th $130 at $6.00 – Remove
Purchased Tractor Supply Company (TSCO) - $203.03

October 2nd
NextEra Energy (NEE) - Rating change “BUY” to “HOLD”

Portfolio Recap

AbbVie Inc. (ABBV)
Yield: 4.0%
So far, this cutting-edge biopharmaceutical company stock is getting through this challenging year in decent shape. It has returned -2% YTD. But it has been a lot better over the last two months when it has been up over 13%. It is struggling with shrinking revenues because of the loss of U.S. patent protection for its blockbuster Humira drug. But the company has the pipeline to overcome in the not-too-distant future. The recent solid earnings report emboldens the notion that the revenue drop from the Humira patent expiration will be temporary and AbbVie will turn the corner sooner than expected. BUY

Digital Realty Trust (DLR)
Yield: 4.0%
This data center REIT had been solid and defied the challenging market until September. It’s pulled back over 9% since the end of August and spoiled the uptrend that began in May. DLR has been a victim of the overall market and the selloff in the technology sector spurred by rising rates and the hawkish Fed. But the operational performance of the company has been solid. The market may not have priced in the additional growth catalyst Digital is likely to get from significantly increasing artificial intelligence spending. BUY

Hess Corporation (HES)
Yield: 1.1%
The energy exploration and production company stock hit a new 52-week high two weeks ago but has since fallen about 10%. It started to get new life last week as oil prices made a new high but it really hasn’t gotten out of the mud yet. Oil prices stopped going higher and have been stuck right around 90 per barrel of West Texas Intermediate (WTI). HES is highly levered to energy prices and there may be a sense among investors that prices may have peaked. But a pause in oil prices after a big spike is normal, and the pause may be temporary as global supply is still strained amid strong demand. BUY

Intel Corp, (INTC)
Yield: 1.4%
After hitting a new 52-week high in mid-September, INTC abruptly pulled back 15%. INTC typically pulls back after a spike. But there was also some bad news. At a company event management indicated that it would take longer to turn around revenue and earnings. Plus, the Fed’s hawkish tone on interest rates also hurts the technology sector. But the bleeding stopped and INTC moved higher last week. Hopefully, the momentum will last. BUY

Rating change “BUY” to “HOLD”

NextEra Energy, Inc. (NEE)
Yield: 3.3%
The already downtrodden stock is having a disastrous week. Since the close on September 25, NEE has plunged over 22%. The harsh performance was triggered by a report from its subsidiary, NextEra Energy Partners, LP (NEP). The MLP announced that it is cutting the projected distribution growth rate from 12% to around 6%. The subsidiary cited higher interest rates for the decision. The market hated it and both NEP and NEE are getting hammered.

Utility stocks have already been struggling with the higher interest rates. These companies have a high level of debt and higher rates add to funding costs. High rates also have the effect of making alternative investments in fixed income more attractive. The distribution slash reaffirms the market’s skepticism about interest rates and hits NEE when it was already down.

Investors may be wary of the parent company’s projections for 8% to 10% annual dividend increases for the next several years. We’ll hold onto the dirt-cheap stock for now because it has continued to show stellar operational performance. But it will be reduced to HOLD until the negative momentum stops. HOLD

Realty Income Corp. (O)
Yield: 6.2%
This rock-solid, legendary income REIT has not lived up to its reputation of late. O just hit a brand-new low which is the lowest price for the REIT since the pandemic bear market more than three years ago. Defensive stocks have been poor performers all year. But operational performance has been sound as earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. There is a new round of selling in these already beleaguered defensive dividend stocks. BUY

Tractor Supply Company (TSCO)
Yield: 2.0%
The farm and ranch company stock has been getting slapped around as investors are worried about the continued resiliency of the consumer. But Tractor’s rural consumers have already been weak for a while and the company has been successfully compensating with its vast array of staple products. Last quarter, the company delivered 8.5% EPS growth while average S&P 500 earnings were down. TSCO should be solid in just about any environment with a low beta and a highly resilient product base. BUY

Qualcomm Corp. (QCOM)
Yield: 2.9%
The chipmaker stock continues to stink up the place. It has returned just 3% YTD while the technology sector is up over 30% over the same period. The sector is being driven by stocks with exposure to AI that are benefitting right now. It’s a little soon for Qualcomm. The company is highly dependent on smartphones. And sales have been falling as the 5G cycle comes to an end and the global economy is sputtering. But smartphone sales may have bottomed out and QCOM could benefit mightily and move fast when things turn around. BUY

The Williams Companies, Inc. (WMB)
Yield: 5.2%
The crummy market is even getting to WMB a little bit. The midstream energy company stock moved sharply higher in the summer until leveling off around the middle of August. It’s still in the higher range after the summer surge but it too is showing some signs of weakness in this market. Perhaps renewed strength in the more commodity price-sensitive energy stocks can reignite further upside from here. Earnings were solid and recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. BUY

Xcel Energy Inc. (XEL)
Yield: 3.6%
These days continue to be very ugly for this clean energy utility as well, although not as bad as NEE. XEL has been trending lower since the beginning of April and hit a new 52-week low amid the recent market and sector tumult. This is one of the best utility stocks to own and the recent week’s debauchery may prove to be very temporary. XEL is now selling close to the pandemic bear market lows of three years ago ahead of a likely slowing economy. BUY

Existing Call Trades

Sell HES October 20th $155 calls at $9.00 or better
It looks like a very good idea to have sold calls on stocks near the high before the market turned ugly. Although energy prices are still high and there is reason to believe they could go still higher in the months ahead, this market is proving to be unforgiving just about everywhere. Much will depend on the direction of oil prices over the next few weeks to determine if these shares are called.

Sell INTC October 20th $35 calls at $3.50 or better
Despite the recent market and technology sector selloff, INTC is still hanging tough a few cents above the strike price. These shares had a big rally to a new 52-week high when the calls were sold, and they were deep-in-the-money calls. Unless this market turns around in the next few weeks, there is a good chance INTC closes below the strike price at options expiration.


Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc. QCOM5/5/21$134.65$111.06$130.002.88%-12.89%
Intel CorporationINTC7/27/22$40.18$35.55$35.001.41%-7.61%
The Williams Companies WMB8/24/22$35.58$33.69$38.005.31%1.47%
NextEra Energy, Inc.NEE4/25/23$77.50$57.29NA3.28%-25.40%
Hess CorporationHES6/6/23$132.25$153.00$140.001.14%16.39%
Realty Income Corp. O6/27/23$60.19$49.94$62.006.15%-15.51%
Digital Realty TrustDLR7/18/23$117.31$121.02$125.004.03%4.14%
AbbVie Inc.ABBV7/25/23$141.63$149.06$150.003.97%5.25%
Xcel Energy Inc.XEL8/22/23$57.95$57.22$65.003.64%-0.38%
Tractor Supply CompanyTSCO9/26/23$203.03$203.05$215.002.03%0.01%

Existing Call Trades

Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
INTC $35 Oct 20th callINTC231020C00035000Sell 9/8/23$3.78$1.53$3.009.41%
HES $155 Oct 20th callHES231020C00155000Sell 9/8/23$9.00$4.00$9.006.81%
as of close on 9/29/2023


SecurityTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$100.0015.08%
U.S. BancorpUSBCalled 7/22/20$36.269/18/20$383.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/20$41.9210/16/20$458.49%
Starbucks Corp.SBUXCalled8/26/20$82.4110/16/20$886.18%
Visa CorporationVCalled 9/22/20$200.5611/20/20$2000.00%
AbbVie Inc.ABBVCalled6/2/20$91.0412/31/20$10012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/20$18.141/15/21$2015.16%
Altria GroupMOCalled 6/2/20$39.661/15/21$407.31%
U.S. BancorpUSBCalled 11/25/20$44.681/15/21$451.66%
B&G Foods Inc,BGSCalled10/28/20$26.792/19/21$284.42%
Valero Energy Inc.VLOCalled8/26/20$53.703/26/21$6011.73%
Chevron Corp.CVXCalled12/23/20$85.694/1/21$9612.95%
KKR & Co.KKRCalled3/24/21$47.986/18/21$5514.92%
Digital Realty TrustDLRCalled1/27/21$149.177/16/21$1555.50%
NextEra Energy, Inc.NEECalled2/24/21$73.769/17/21$8010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/21$50.6310/15/21$5511.65%
AGNC Investment CorpAGNCSold1/13/21$15.521/19/22$155.92%
ONEOK, Inc.OKECalled5/26/21$52.512/18/22$6019.62%
KKR & Co.KKRSold8/25/21$64.522/23/22$58-9.73%
Valero Energy Inc.VLOCalled11/17/21$73.452/25/22$8315.53%
U.S BancorpUSBSold3/24/21$53.474/13/22$51-1.59%
Enterprise Product Ptnrs EPDCalled3/17/21$23.214/14/22$2411.25%
FS KKR Capital Corp. FSKCalled10/27/21$22.014/14/22$2313.58%
Xcel Energy Inc. XELCalled10/12/21$63.005/20/22$7012.66%
Innovative Industrial Props.IIPRSold3/23/22$196.317/20/22$93-51.23%
One Liberty PropertiesOLPSold7/28/21$30.378/24/22$25-12.94%
ONEOK, Inc.OKECalled5/25/22$65.141/20/23$652.66%
Xcel Energy, Inc.XELCalled10/26/22$62.571/20/23$654.67%
Realty Income Corp. OCalled9/28/22$60.372/17/23$635.41%
Medical Properties TrustMPWSold1/24/23$13.223/21/23$8-38.00%
Brookfield Infrastructure Cp.BIPCCalled11/9/22$42.437/21/23$458.72%
Star Bulk Carriers Corp.SBLKSold6/1/22$33.308/8/23$18-31.38%
Visa Inc.VCalled12/22/21$217.168/18/23$2359.16%
Global Ship Lease, Inc.GSLSold2/23/22$24.968/29/23$19-13.82%
ONEOK, Inc.OKECalled3/28/23$60.989/15/23$659.72%


SecurityIn/out moneySell DateSell PriceExp. Date$ returnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/20$3.007/17/20$3.003.40%
MO Jul 31 $42 callout-of-money6/17/20$1.607/31/20$1.604.03%
ABBV Sep 18 $100 callout-of-money7/15/20$4.609/18/20$4.605.05%
IIPR Sep 18 $100 callin-the-money7/22/20$5.009/18/20$5.005.69%
QCOM Sep 18 $95 callin-the-money6/24/20$4.309/18/20$4.304.82%
USB Sep 18 $37.50 callin-the-money7/22/20$2.009/18/20$2.005.52%
BIP Oct 16 $45 callin-the-money9/2/20$1.9510/16/20$1.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/20$3.3010/16/20$3.304.00%
V Nov 20 $200 callin-the-money9/22/20$10.0011/20/20$10.004.99%
ABBV Dec 31 $100 callin-the-money11/18/20$3.3012/31/20$3.303.62%
EPD Jan 15 $20 callin-the-money11/23/20$0.801/15/21$0.804.41%
MO Jan 15 $40 callin-the-money11/25/20$1.901/15/21$1.904.79%
USB Jan 15 $45 callin-the-money11/25/20$2.001/15/21$2.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/20$2.402/19/21$2.408.96%
VLO Mar 26 $60 callin-the-money2/10/21$6.503/26/21$6.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/21$4.304/1/21$4.305.02%
AGNC Jun 18 $17 callout-of-money4/13/21$0.506/18/21$0.503.21%
KKR Jun 18 $55 callin-the-money4/28/21$3.006/18/21$3.006.25%
USB Jun 16 $57.50 callout-of-money4/28/21$2.806/18/21$2.805.24%
DLR Jul 16 $155 callin-the-money6/16/21$8.007/16/21$8.005.36%
AGNC Aug 20 $17 callout-of-money6/23/21$0.508/20/21$0.503.00%
OKE Aug 20 $57.50 callout-of-money6/23/21$3.508/20/21$3.506.67%
NEE Sep 17 $80 callin-the-money8/11/21$3.509/17/21$3.504.75%
BIP Oct 15 $55 callin-the-money9./01/21$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24/21$2.3011/19/21$2.304.30%
OKE Nov 26 $65 callout-of-money10/20/21$2.2511/26/21$2.254.28%
KKR Dec 17 $75 callout-of-money10/26/21$3.5012/17/21$3.505.42%
QCOM Jan 21 $185 Callout-of-money11/30/21$9.651/21/22$9.657.17%
OLP Feb 18 $35 Callout-of-money11/19/21$1.502/18/22$1.504.94%
OKE Feb 18 $60 Callin-the-money1/5/22$2.752/18/22$2.755.24%
USB Feb 25 $61 callout-of-money1/13/22$2.502/25/22$2.504.68%
VLO Feb 25 $83 callin-the-money1/18/22$4.202/25/22$4.206.13%
EPD Apr 14th $24 callin-the-money3/2/22$1.254/14/22$1.255.69%
FSK Apr 14th $22.50 callin-the-money3/10/22$0.904/14/22$0.904.09%
XEL May 20th $70 callin-the-money3/30/22$3.005/20/22$3.004.76%
SBLK July 15th $134 callout-of-money6/1/22$1.607/15/22$1.604.80%
OKE Oct 21st $65 callout-of-money8/24/22$3.4010/21/22$3.405.22%
OKE Jan 20th $65 callIn-the-money11/25/22$3.701/20/23$3.705.68%
XEL Jan 20th $65 callin-the-money11/25/22$5.001/20/23$5.007.99%
O Feb 17th $62.50 callin-the-money12/28/22$3.002/17/23$3.004.97%
QCOM Sep 16th $145 callout-of-money7/20/22$11.759/16/2211.758.73%
V Mar 17th $220 callout-of-money1/24/23$12.003/17/23$12.005.51%
OKE May 19th $65 callout-of-money4/11/23$2.705/19/23$2.704.43%
V Jun 2 $230 callout-of-money4/21/23$10.506/2/2310.54.82%
BIPC $45 July 21st callin-the-money5/23/23$3.257/21/23$3.257.66%
V $235 Aug 18th callin-the-money7/11/23$9.008/18/23$9.004.13%
GSL $20 Aug 18th callout-of-money7/11/23$1.258/18/231.255.00%
OKE $65 Sep 15 callin-the-money9/15/23$3.207/25/233.24.92%