January 22, 2025

Trump Moves in and the Market Moves Up

While the market news is inundated with Trump stories as he has issued a massive number of executive orders on his first day in office, the real market catalyst right now actually started last week.

There were a slew of executive orders affecting the energy industry but no real surprises. The improving story remains essentially the same since the election. There was likely some relief that large tariffs have not been announced, at least so far. But the Trump news is overshadowing last week’s market-altering news.

A week ago, the market was teetering on the brink. But it teetered in the right direction.

The benchmark ten-year Treasury rate had soared above 4.8%, dangerously close to the late-2023 peak of about 5%. December CPI inflation was reported last week. A bad number could have thrust the 10-year rate above the peak, almost certainly prompting a selloff in stocks. But Wall Street was happy with the number and things went the other way.

The 10-year rate pulled back below 4.6%. And the S&P, along with previously beleaguered interest rate-sensitive stocks, rallied higher. Danger is averted, for now.

The market has rallied over the past year at least partially on the assumption that interest rates have peaked. News to the contrary could have forced a repricing. December CPI was better than expected and the gloomy interest rate narrative abated. Many who were talking about no Fed rate cuts or even a rate hike this year have changed their tune and now again expect rate cuts in 2025.

We’ll see if stocks can build on the rally after the recent gloom has evaporated and Trump takes office. While many stocks that had been under pressure have rallied, so have certain stocks that were already riding high. Natural gas continues to be a huge growth catalyst.

The electricity trade continues to be hot stuff in the market. Demand for electricity is growing for the first time in decades as AI and its data centers suck up unprecedented amounts of the stuff. Natural gas, as the main fuel source that generates electricity, and related companies have been on fire. That’s why energy was the best-performing market sector over the last month.

Midstream energy positions Enterprise Product Partners (EPD), ONEOK (OKE), and The Williams Companies (WMB) have resumed their ascent. Constellation Energy (CEG) continues to move ever higher and the export companies, Cheniere Energy (LNG) and Cheniere Energy Partners (CQP), continue to make new highs.

Recent Activity

January 8^th
ONEOK Inc. (OKE) - Rating change – “HOLD” to “BUY”
AbbVie Inc. (ABBV) – Buy Half
NextEra Energy (NEE) – Rating change “HOLD” to “BUY”

January 15^th
Toll Brothers, Inc. (TOL) – Rating change “BUY” to “HOLD”

High Yield Tier

AGNC Investment Corporation (AGNC – yield 15.0%) – After wallowing since October, AGNC had a nice rebound off the bottom last week. The December inflation report was to Wall Street’s liking and interest rate-sensitive stocks rebounded. The gloomy interest rate expectations of the past few months had been pressuring the price. Hopefully, the improved interest rate outlook will last for a while. Spreads are still higher as the fed funds rate has already been cut by 1% and longer rates are higher. AGNC should be set up for a much better 2025. BUY

Brookfield Infrastructure Partners (BIP – yield 5.2%) – Like most other utilities, BIP was riding high until the middle of October when the interest rate narrative changed for the worse. The business itself is solid, with remarkably stable revenues and a growing dividend. BIP was a superstar performer before inflation and rising interest rates. But it has been a slave to the interest rate narrative for the last two years. The interest rate news has improved, but BIP didn’t get a bounce last week. Hopefully, it can get a move on in the weeks ahead. Brookfield reports fourth-quarter earnings next week. (This security generates a K1 form at tax time.) BUY

Cheniere Energy Partners, L.P. (CQP – yield 5.6%) – This high-yielding liquid natural gas export partnership has gotten a move on. It was up 10% last week. It is now up 16% YTD and about 27% since the election. Natural gas-related stocks have also been strong as electricity demand skyrockets and the use of the fuel is expanding both in the U.S. and overseas. The incoming administration is highly encouraging of natural gas exports and Cheniere is the country’s largest exporter. The longer-term situation was always strong and now the short-term situation is improving. (This security generates a K1 form at tax time.) BUY

Enterprise Product Partners (EPD – yield 6.6%) – After a December pullback, midstream energy stocks are moving higher again. Natural gas has become a hot commodity with the growth of electricity demand from data centers. There will be more oil and gas production with the policies of the new administration as well as a much friendlier regulatory environment. It appears that EPD is headed right back to the 52-week high and beyond. The stock 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 12.6%) – This Business Development Company (BDC) has been bouncing around since the end of November, but it broke out to a new high after rallying last week. 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. The prognosis got better going forward. BUY

Main Street Capital Corporation (MAIN – yield 6.9%) – As a BDC, this story is very similar to that of FSK. 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 is also breaking out and in the process of making new highs. MAIN was a rare stock that didn’t have a December swoon. The improving economic outlook leaves room for further appreciation. BUY

ONEOK Inc. (OKE – yield 3.6%) – This more volatile midstream energy company stock is partying like it’s the week after the election again. After a big December swoon that surrendered almost all of its post-election gains, OKE is back in business and may continue to rally to new highs. The market loves the new acquisitions of Medallion Midstream and Enlink Midstream (ENLC), as the new additions are accretive immediately. The story remains strong as recent actions will enhance earnings into a future that just got better with the election. BUY

The Williams Companies, Inc. (WMB – yield 3.2%) – The market is currently slobbering all over midstream companies involved with natural gas. WMB has already recovered all of the December swoon and is back to a new high. Electricity demand is booming, and natural gas is the primary fuel source. Trump is also opening up the production spigots and regulations are getting a lot friendlier. There is growing demand in the U.S. and overseas. Williams guided to the upper half of 2024 estimates and the future looks great. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.8%) – The future looks good for this life science and biotech company. AbbVie is turning the corner from the Humira expiration as new drugs Skyrizi and Rinvoq are expected to generate $19 billion this year, replacing nearly all the peak Humira revenue alone. The company returned to slow revenue growth in the second half of 2024 and is expected to generate “robust” growth this year. There are also several drugs that should receive FDA approval this year. ABBV returned a respectable 15% in 2024, but 2025 should be much better as greener pastures are finally arriving. But an early sticking point is trepidation over the nomination of RFK to HHS and fears about pricing. BUY

Ally Financial Inc. (ALLY – yield 3.2%) – Ally was up 8% last week. It had been floundering badly along with most other financial stocks as a soaring interest rate narrative took hold. But it rallied last week as big bank earnings were stellar and December inflation was okay. Now, there are renewed expectations for the Fed to cut rates this year. Plus, the regulatory environment is certain to become much more friendly in the new administration. Analysts are also expecting earnings growth of 40% in 2025. BUY

Broadcom Inc. (AVGO – yield 1.2%) – Looking good! This semiconductor, software and artificial intelligence juggernaut really got a boost from earnings last month. AVGO soared 38% in the two days following the report. The company said demand for its AI chip (XPU) is booming and expects it to generate revenues between $60 billion and $90 billion by 2027. Revenue was $12.2 billion in fiscal 2024. The revelation has captured the imagination of investors. While AVGO has pulled back a bit from the December high, it is holding a level close to the high. I expected some consolidation after a huge surge. That’s why it was downgraded to a HOLD for now. But it can absolutely continue forging higher this year. HOLD

Cheniere Energy, Inc. (LNG – yield 0.9%) – Natural gas is hot. Export companies are hot. LNG is hot. The stock is up 23% over the last month and 45% since being added to the portfolio in July. Natural gas demand is soaring in the U.S. and abroad. This liquid natural gas (LNG) exporter is a definite beneficiary of the Trump election. 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%) – WOW! CEG is on fire. This electricity demand story is hot stuff. The stock soared over 25% in just one day after the company announced it would acquire natural gas and geothermal electricity giant Calpine Corp. for $26.6 billion. Obviously, the market likes the deal. The acquisition makes Constellation the biggest independent electricity provider in the nation at a time when demand for electricity is skyrocketing because of artificial intelligence. The purchase puts Constellation even more in the catbird seat of a massive trend. It hasn’t pulled back from the recent surge and continues to make new highs. HOLD

Digital Realty Trust, Inc. (DLR – yield 2.7%) – This data center REIT made a huge jump after the company stated that demand for data center AI space is booming in the last earnings report. DLR was downgraded to a HOLD on price alone. The stock has pulled back since but it’s still up 60% since being added to the portfolio in July of 2023. DLR doesn’t trade with the ebb and flow of the interest rate narrative like most REITs. It trades more like a tech stock because of the AI growth catalyst. The future still looks bright as data centers are booming. HOLD

Eli Lilly and Company (LLY – yield 0.8%) – The superstar drug company stock has been wallowing of late. The issue is that there is growing fear that the demand for weight-loss drugs isn’t as strong as the market had previously anticipated. Of course, demand is still booming, and we will have to see how these drugs do in future quarters. Lilly raised guidance for 2025 and still expects very strong earnings growth. I consider the news a blip that doesn’t change the great story. But we will have to watch how this weight-loss drug demand thing plays out. BUY

McKesson Corporation (MCK – yield 0.5%) – McKesson recovered all the summer and fall dip in a very short time, resumed a funk in December, but is moving off the recent bottom this month. The pharmaceutical distributor took a plunge after second-quarter earnings missed because of supply disruptions. But the third-quarter earnings alleviated that concern, and the stock took off again. The healthcare sector is floundering somewhat because of uncertainty about the new regime in Washington. But hopefully, MCK will get back to slowly trending ever higher in the year ahead as its customer base grows all by itself because of the aging population. BUY

Qualcomm Inc. (QCOM – yield 2.1%) – Although QCOM had a strong week, it’s still stuck in the mud in the recent range. It’s way below the June high and still the same price it was last spring. It’s worth being patient because when this stock moves it easily makes up for lost time. And it will take off at some point. The market wants to see strong U.S. smartphone sales from an AI upgrade cycle. Although that hasn’t happened yet, it could become a catalyst sometime this year. BUY

Toll Brothers, Inc. (TOL – yield 0.6%) – After a tough couple of months, this luxury homebuilder company’s stock soared over 10% in the past week. The recent better news about the likely direction of mortgage rates was the main catalyst. TOL was downgraded to a HOLD over the past week as the recent glum interest rate outlook combined with the inflation report coming out last week presented a high level of short-term risk. Last week turned out well. But the stock will still be rated a HOLD until the recent upside is more established. HOLD

UnitedHealth Group Inc. (UNH – yield 1.6%) Earnings – UNH took another hit last week 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, revenue missed, and earnings beat. However, the company also reiterated 2025 guidance, and the stock has been moving higher again. It’s one thing after another with this one. I will maintain the rating for now because the price appears to be recovering. BUY

Safe Income Tier

NextEra Energy (NEE – yield 2.9%) – The regulated and clean energy utility rallied 5% last week as the good news about inflation and interest rates ignited the stock. It’s cheap and well-positioned as interest rates should at least not go much higher, and electricity demand is booming. NEE was a superstar stock until 2022 when inflation and rising interest rates kicked in. But it recovered in 2024 and returned about 20%. The recent volatility is from the macro environment and not the internal operations of the company. NextEra expects to deliver 10% average earnings and dividend growth over the next several years, and it has a long track record of successfully delivering. BUY

USB Depository Shares (USB-PS – yield 5.7%) – Longer-term interest rates had been soaring and pressuring the price. But last week’s better news reversed the trend. The ten-year fell from 4.8% to under 4.6% 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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