February 19, 2025

S&P Stalls While Some Stocks Thrive

While the S&P 500 has stalled at about the same level since late November, it’s been more exciting under the hood.

The market indexes have stalled mostly because of technology. Those stocks still haven’t fully recovered from the DeepSeek plunge in late January. At the same time, earnings for the rest of the market are catching up.

It’s been a solid earnings quarter so far with an average of about 11% earnings growth, the highest in a while. But the good earnings are running up against uncertainties posed by stubbornly high interest rates, tariffs, and a strong dollar.

It’s worth noting that the best-performing market sectors YTD are Communication Services, Finance, and Materials. The second-worst-performing sector is Information Technology. The indexes may be stymied by lagging technology stocks, but several other sectors are having strong years so far. That rotation in performance could last for much of the year as strong earnings in other sectors are expected to persist in the quarters ahead.

The only portfolio positions making new highs are FS KKR Capital Corp. (FSK) And Main Street Capital (MAIN). Strong consumer confidence and a projected stronger economy are helping their small business portfolios. Portfolio position Broadcom (AVGO) is also in the news this week.

Recent news is temporarily interrupting AVGO’s recovery from last month’s selloff. The stock is down following reports that Broadcom and TSMC (TSM) are exploring the idea of buying chipmaker Intel (INTC) and splitting it up. Broadcom is allegedly considering making a bid for Intel’s product business that designs semiconductors. We’ll see if this comes to fruition. Broadcom has become the company it is primarily through acquisitions. It seems to know how to make these acquisitions work.

This sideways market probably won’t last. We are likely to see a move higher or lower in the next few weeks. It’s hard to tell which way is likely at this point. The direction may be dictated by future headlines. But regardless of the next near-term move, the year still looks bullish. A strong economy and the likelihood that interest rates have peaked, in addition to the artificial intelligence catalyst, should move the market higher.

Recent Activity

January 29
Broadcom Inc. (AVGO) – Rating change “HOLD” to “BUY”

High Yield Tier

AGNC Investment Corporation (AGNC – yield 13.8%) – After a rough couple of years with rising inflation and interest rates, this mortgage REIT has returned about 15% YTD. The narrative and stock performance have been improving this year and AGNC has rallied to the highest levels of the last year. The REIT reported solid earnings this quarter. Numbers were better for the full year but a little worse for the quarter as the environment took a slight step back. Spreads are still higher as the Fed Funds rate has already been cut 1% and longer rates are higher. AGNC should be set up for continuing solid performance in 2025. BUY

Brookfield Infrastructure Partners (BIP – yield 5.2%) – The infrastructure partnership reported earnings last month that beat expectations with 8% FFO (funds from operations) growth for 2024 over the prior year and 10% minus exchange rates. Brookfield also announced a 6% distribution increase, marking the 16^th consecutive year of payout increases. BIP jumped 4.5% on the day following the report. It’s more good news that Brookfield reflected confidence in future earnings. The business is delivering but the stock price isn’t. BIP returned 15% over the last year while the market was up 24%. It continues to be a slave to the interest rate narrative and likely won’t break out until interest rates do. But it does deliver a solid income in the meantime and provides an element of defense to the portfolio. (This security generates a K1 form at tax time.) BUY

Cheniere Energy Partners, L.P. (CQP – yield 5.3%) – This high-yielding liquid natural gas export partnership has pulled back from the recent high this month. But it’s still up 17% YTD and 27% since the election. The trend has been great, and earnings will be reported at the end of this week or the beginning of next week. The demand for U.S. exports is likely to continue to grow strongly even if electricity demand growth is less than previously expected. U.S. natural gas exports are growing, and Cheniere is the biggest player. Hopefully, a strong earnings report can generate some upside traction. (This security generates a K1 form at tax time.) BUY

Enterprise Product Partners (EPD – yield 6.4%) – The partnership reported solid earnings with 7% earnings growth for the year and a 5% distribution hike, marking the 26^th consecutive year of an increase. Natural gas demand is booming, and Enterprise will continue to benefit. While most midstream energy companies took a hit last month on fears that AI energy demand will be less than anticipated, those fears are waning, and the midstream stocks are coming right back. It looks like EPD might be moving back to the high. EPD is still below the all-time high set in 2014 and can certainly move beyond that, especially with much higher earnings now. (This security generates a K1 form at tax time.) BUY

FS KKR Capital Corp. (FSK – yield 11.8%) – This Business Development Company (BDC) keeps rolling on, making more new highs. The prospect for a strong economy growing forward has increased as has business confidence. The stock even endured the last ex-dividend without a selloff, which is unusual for a stock with such a high yield. FSK is a strong beneficiary of the Trump victory. The perception of high economic growth going forward is exactly what FSK needed. It has a portfolio of smaller companies that tend to be economically sensitive. FSK is up 9% YTD and has returned 37% over the past year and the prognosis remains strong. BUY

Main Street Capital Corporation (MAIN – yield 6.7%) – As a BDC, this story is very similar to that of FSK. In fact, these are the only two portfolio positions that are currently making new highs. 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. MAIN was a rare stock that didn’t have a December swoon. It just keeps on inching higher. The improving economic outlook leaves room for further appreciation, plus you get that monthly dividend. BUY

ONEOK Inc. (OKE – yield 4.2%) – This more volatile midstream energy company stock is about even for the year after two stellar return years in 2023 and 2024. OKE is still nearly 20% below the high from late November. It has been bouncing around for the last couple of months. Although it has been leveling off of late, the last bounce was lower following the DeepSeek news last month. But natural gas demand is likely to remain strong and OKE is still in a great position with reduced regulation, encouragement of oil and gas production, and growing demand for electricity. The market loves the new acquisitions of Medallion Midstream and Enlink Midstream (ENLC), as the new additions are accretive immediately. BUY

The Williams Companies, Inc. (WMB – yield 3.4%) – This midstream energy company took the biggest hit of any in the portfolio on the January 27 selloff, down 8.43%. WMB still has returned about 6% YTD and 74% over the last year. Sure, the selloff was overblown, and electricity demand will still rise strongly, but the stock was probably rising too fast and needed consolidation. Things are still good for all the reasons mentioned above. Natural gas has a lot going for it and Williams will likely find lasting upside traction in the weeks and months ahead. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.4%) – The biotech company surged after a strong earnings report last month. ABBV has moved over 15% higher since January 22^nd. The company beat earnings forecasts, but the main driver was the performance of its immunology drugs Skyrizi and Rinvoq, which collectively delivered $5.61 billion in revenue for the quarter. Those drugs alone have replaced the Humira revenue which peaked at a little over $20 billion annually. The company also raised revenue forecasts on the two drugs by $4 billion to $31 billion a year by 2027. The earnings report showed Abbvie has replaced the Humira revenue. The patent cliff had been holding the stock back but that’s gone now. BUY

Ally Financial Inc. (ALLY – yield 3.1%) – Ally has had a strong move off the recent bottom this year. Although it bounces around a lot, it’s still up over 7% YTD. The online bank reported better-than-expected earnings last month and lower loan loss provisions in the quarter after loan loss worries had held the stock back. ALLY was floundering badly along with most other financial stocks as a soaring interest rate narrative took hold. But it started to rally after big bank earnings were stellar and the interest rate narrative improved. The good earnings report added fuel. Analysts are expecting earnings growth of 40% in 2025. BUY

Broadcom Inc. (AVGO – yield 1.0%) – Breaking news is temporarily interrupting AVGO’s recovery from last month’s selloff. The stock is down in Tuesday trading following reports that Broadcom and TSMC (TSM) are exploring the idea of buying chip maker Intel (INTC) and splitting it up. Broadcom is allegedly considering making a bid for Intel’s product business that designs semiconductors. We’ll see if this actually comes to fruition. But bear in mind that Broadcom has become the company it is primarily through acquisitions that it seems to know how to make work. BUY

Cheniere Energy, Inc. (LNG – yield 0.9%) – This natural gas exporter has pulled back 20% from the high made about a month ago. It tends to move with the ebb and flow of energy prices in the near term. There could also be some angst over tariffs. The natural gas trade was red hot and bound to cool off. But things still look very good going forward. Natural gas demand is soaring in the U.S. and abroad. Cheniere stands to benefit from a friendlier regulatory environment, more natural gas production, cheaper domestic prices, and encouragement of natural gas exports. BUY

Constellation Energy Corporation (CEG – yield 0.4%) – This nuclear power, and now natural gas too, company stock continues to recover from the 20% one-day plunge last month. It’s still up 44% YTD and may continue to climb. The DeepSeek news called into question data center energy demand, which had been driving deals with technology companies and the rise in CEG. We’ll see if any weaker data center and electricity demand materializes. There is a sense that last month’s news was overdone, and Constellation is brilliantly positioned ahead of electricity demand that is certain to grow. The recent consolidation was probably overdue given the performance of the stock. But things are still good. HOLD

Digital Realty Trust, Inc. (DLR – yield 3.0%) – This data center REIT has been a great investment since it was added to the portfolio. But it has certainly been floundering of late. DLR spent December and January falling 16% from the late-November high. It was doing OK last month until it got clobbered by the DeepSeek news and possible negative repercussions on data center demand. DLR had benefitted mightily from the data center expansion prospects. The stock probably got a little too high too fast. But the future still looks extremely bright, and DLR should recover going forward. Data center growth will continue and continue to be a trend this year as the recent troubles probably fade into memory. HOLD

Eli Lilly and Company (LLY – yield 0.7%) – The pharmaceutical juggernaut reported strong earnings, and the stock has rallied since. Although sales of weight-loss drugs were less than previously anticipated, Zepbound and Mounjaro generated a whopping $5.4 billion in the fourth quarter alone. The company reported revenue growth of 45% for the quarter and EPS growth of 102%. For the full year, revenue grew 32% and earnings grew 101%. Lilly had warned in January of lower-than-expected weight-loss drug sales and the stock fell to a six-month low. The market liked the earnings report, and the stock is up 20% from last month’s low. The company also raised guidance and anticipates 30% revenue growth and 90% earnings growth for 2025. BUY

McKesson Corporation (MCK – yield 0.5%) – McKesson reported earnings earlier this month that slightly missed estimates but guided higher for 2025. MCK is at about the same price it was before the report. There was nothing game-changing about the earnings. It just wasn’t good enough to excite investors and raise the stock price. Pharmaceutical sales were slightly less than expected because of an emphasis on higher-margin specialty drugs. But the good story remains. Sales will grow because it serves a market that grows all by itself because of the aging population. BUY

Qualcomm Inc. (QCOM – yield 2.0%) – The mobile device chip company delivered earnings with strong quarterly results and raised guidance for 2025. And the stock still floundered. Revenue rose 17% for the quarter and EPS rose 24%. Both easily exceeded expectations. There was solid growth in just about every segment including iPhone demand. And guidance was raised for this year. So why the disappointing stock performance? It is likely because there wasn’t evidence of a strong AI smartphone upgrade cycle. And that’s really what the market is looking for. Several analysts expect an upgrade cycle to ignite sometime this year. And that could really move the stock higher. But a breakout is unlikely until that event is within sight. BUY

Toll Brothers, Inc. (TOL – yield 0.7%) – The luxury home-builder company stock had a nice move higher in January but lost all those gains so far this month. After a tough couple of months, TOL moved convincingly off the recent bottom. Although it is still well above that bottom, TOL is having trouble finding any lasting upside traction. Toll Brothers reports earnings this week, and hopefully, the report can get the stock moving higher again. TOL was downgraded to HOLD last month after the stock seemed to be losing traction. Mortgage rates have also risen and that is a big catalyst for home demand. HOLD

UnitedHealth Group Inc. (UNH – yield 1.6%) – UNH took another hit last month when the market wasn’t thrilled with the earnings report and the FTC accused the company, along with others, of overcharging for life-saving drugs. Earnings were mixed as revenue missed and earnings beat. However, the company also reiterated 2025 guidance, and the stock has been moving higher again. It’s been one thing after another with this one. The strong track record of outperformance leads me to believe this stock can make a move at some point. It also holds up very well in rough markets. Hopefully, the recent upside traction can last. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.3%) – The regulated and clean energy utility stock continues to languish near the lowest levels of the recent range. It didn’t get a benefit from the electricity trade, and it barely recovered when the interest rate narrative improved. Operational results have been good with earning growth of 8.2% and a reiterated outlook through 2027. The utility also announced plans to restart its Duane Arnold nuclear plant and a collaboration with GE Vernova to develop natural gas-fired projects across the U.S. The utility is taking advantage of the soaring electricity demand, and the projects are likely to deliver more revenue and stronger growth going forward. But I’m running out of patience with this one. BUY

USB Depository Shares (USB-PS – yield 5.6%) – Longer-term interest rates had been soaring and pressuring the price in past months. But better news has since reversed the trend. The ten-year fell from 4.8% to about 4.5% and fixed income rallied. This preferred stock has endured a tough bond market very well and should likely continue to hold its own. Plus, rates are more likely to trend lower from here in the year ahead. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.2%) – 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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