Earnings, Interest Rates, and the Middle East
It’s officially a correction. The S&P 500 fell 10% below the 52-week high on a closing basis last week. Now what?
As usual, all eyes are on the Fed. The Central Bank will decide on interest rates on Wednesday. Also, this week are earnings from Apple (AAPL) and several other large companies and another jobs report on Friday. But the Fed should be the main event.
Although one more rate hike is expected, the Fed is expected to hold this week and say they might raise rates later. What else is new? Although the market can’t help but obsess with the Fed, the bigger issue is longer-term rates. Specifically, the current 10-year yield’s flirtation with the psychologically important 5% level is causing angst.
Rates could be peaking and pull back after touching the 5% level briefly. That would be positive. But if the 10-year yield hits 5% and moves higher, it will likely be trouble for the market in the near term. There’s also the situation in the Middle East. The next couple of days and weeks could be key to determining if the conflict becomes more widespread.
Mixed earnings results from big tech companies last week failed to impress. It is possible that several large companies reporting this week could tip the balance toward the positive. But I don’t expect the market to surge much higher until there is some sort of resolution to the 10-year rate and the Middle East.
But there is a good chance the market bottoms out in the next several weeks. That should create some buying opportunities.
Past Month Activity
October 2
NextEra Energy (NEE) - Rating change “BUY” to “HOLD”
October 20
HES October 20 $155 calls at $9.00 - Expired
Hess Corporation stock (HES) - Called
INTC October 20 $35 calls at $3.78 – Expired
October 24
Purchased Marathon Petroleum Corporation (MPC) - $149.45
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 4.3%
It’s been a rollercoaster week for ABBV as shares plunged more than 4% last week, and then the stock recovered nearly all those losses on a higher open on Monday. Last week’s plunge was a reaction to the third-quarter earnings report. Although the company beat expectations and raised guidance for the year as well as the dividend, sales of its cosmetic treatments (including Botox) disappointed and Wall Street didn’t like that. However, the company received analyst upgrades and a realization that last week’s selling was overdone.
Healthcare is a good sector to be in when the overall market struggles. Shrinking Humira revenues should be overcome with its strong new drugs and pipeline in the future. The stock sells at a low valuation and investors sense that it might turn the Humira corner sooner ahead of a very bright future. BUY
Digital Realty Trust (DLR)
Yield: 4.0%
This data center REIT reported solid earnings last week that came in in line with expectations. Revenue was up 18% and adjusted EBITDA increased 11% from last year’s quarter. DLR has been trending higher since the report. The long-term prognosis is solid because voracious AI spending upgrades should provide another growth catalyst, in addition to a move toward the cloud. The near-term movement can be sensitive to the REIT market (which may have bottomed out), technology sector performance, and the direction of the overall market. BUY
Intel Corp, (INTC)
Yield: 1.4%
It has been a big up-and-down week for INTC. The stock plunged 9.8% in the first four days of last week on news that three big chip giants are gunning for Intel’s PC chip stronghold. Serious competition to Intel’s PC dominance could be a problem. Then, the company reported earnings on Friday that blew away expectations and the stock soared 9.3% on the day, making up almost all the losses from earlier in the week.
Earnings indicate that Intel’s turnaround is well on track. It has promising new chips coming out in high-growth areas and its foundry business could be huge. The company also expressed confidence that the other chip makers could not significantly compete for Intel’s chip dominance anytime soon. The competing news has left the stock price right about where it was a week ago and the future still looks bright. BUY
Marathon Petroleum Corp, (MPC)
Yield: 2.3%
This newly added oil refiner just raised the dividend 10% ahead of Friday’s third-quarter earnings report. That seems like a healthy portent for a company that has a several-quarters-long streak of beating expectations. While the quarter is expected to feature lower revenue and earnings than last year on lower throughput margins, the stock could get a boost on the company’s anticipated demand for gasoline and diesel in this strong economy. BUY
NextEra Energy, Inc. (NEE)
Yield: 3.3%
Better times have finally arrived for this previously beleaguered clean energy utility stock. NextEra reported earnings last week that beat estimates and grew 10.6% from last year’s quarter. NEE spiked over 8% for the week. NEE has also made a very convincing move off the low. It’s now up 19% from the low made earlier this month. It is welcome news for a stock that had been down 35% YTD. Management also reiterated previous growth projections and said the company expects to deliver earnings near the top of the expected range through 2026. The selling was way overdone. Hopefully, the momentum continues. HOLD
Realty Income Corp. (O)
Yield: 6.1%
Shares of this already-beaten-down retail REIT are down another 6.6% at mid-day Monday. The REIT announced plans to purchase Spirit Realty Capital (SRC) for $9.3 billion. It is slated to be an all-stock transaction that Realty estimates will increase its annual adjusted funds from operations (AFFO) by 2.5%. Acquiring companies usually fall on the day of the announcement regardless of the wisdom of the deal. In the near term, it will be dilutive to existing shares as Realty will issue new shares for the buyout. It will also increase debt. However, Realty has often proven that it is adept at acquiring companies to its benefit. Shares will still be rated BUY for now on the possibility of a bounce back in the days following the announcement. BUY
Tractor Supply Company (TSCO)
Yield: 2.2%
The country’s largest rural retailer fell nearly 6% since disappointing on earnings last week. Earnings increased 11% over last year’s quarter and net sales were up 4.3%. But the revenue number was slightly below what was expected. The company also slightly lowered guidance for the full year, citing lower demand for seasonal products due to a weaker consumer. This is an unforgiving market. Retail companies were already weak and a worse-than-expected report is asking for it in this cranky market. BUY
Qualcomm Corp. (QCOM)
Yield: 3.0%
The chipmaker stock continues to struggle through this year. The sector was being driven by stocks with exposure to AI that are benefiting right now until interest rates spoiled the party. It’s a little soon for Qualcomm to benefit from AI upgrades, as they haven’t made their way into smartphones yet. 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. The stock sells at a forward PE ratio below 11 times, which is cheap considering the cycle and the growth opportunities in Internet of Things and other AI applications. Qualcomm reports earnings on Wednesday. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.3%
The midstream energy company made a new 52-week high earlier this month but has since pulled back a little in the turbulent market. Midstream energy companies are dividend stocks that have held up relatively well. While other more defensive dividend-paying stocks are struggling, midstream energy companies have been rolling merrily along. Williams also operates in an inflation-resistant business, and revenues should remain solid even in a slow economy. Williams also reports earnings on Wednesday. BUY
Xcel Energy Inc. (XEL)
Yield: 3.6%
The clean energy utility reported earnings last week that slightly missed estimates. But the stock didn’t decline much because it is so beaten down already. The lows may be in. XEL had a convincing 10% move off the low. 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. Even if interest rates do hurt earnings, the damage is already priced into this stock. BUY
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 | $106.46 | $130.00 | 3.01% | -16.50% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $35.54 | $35.00 | 1.41% | -7.64% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.05 | $38.00 | 5.26% | 2.56% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $56.24 | NA | 3.33% | -26.77% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $49.00 | $62.00 | 6.27% | -17.10% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $122.35 | $125.00 | 3.99% | 5.20% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $138.93 | $150.00 | 4.26% | -0.93% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $58.31 | $65.00 | 3.57% | 1.51% |
| Tractor Supply Company | TSCO | 9/26/23 | $203.03 | $187.81 | $215.00 | 2.19% | -7.50% |
| Marathon Petroleum Corp. | MPC | 10/24/23 | $149.45 | $146.00 | $155.00 | 2.26% | -1.77% |
Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| as of close on 10/27/2023 | |||||||
SOLD STOCKS | |||||||
| Secirity | 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 | 4/14/22 | $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 | 1/20/23 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
| Hess Corporation | HES | Called | 6/6/23 | $132.25 | 10/20/23 | $155 | 17.87% |
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 | 9/01/21 | $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 | 7/20.2022 | $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% | |