March 19, 2025

It’s a Correction, Now What?

Last week the S&P 500 index plunged into correction territory. The Nasdaq was already there. Has the market bottomed out or is there more downside to go?

It’s been a while since selling has gotten this ugly. The last market correction was in October of 2023. This is the second of this bull market, which began in October of 2022. That’s not unusual. Corrections are normal in a bull market. The S&P had run up about 75% in a little over two years and was due for a consolidation, especially the technology sector. But is that all this is or is it something more?

Things got ugly for technology stocks after the DeepSeek news in late January as investors feared AI demand had been overestimated. Then fears of slower growth took hold amid still sticky inflation. But the market has not been able to come to terms with all that and generate a more positive narrative because of tariff uncertainty.

The economic news may be improving. Last week’s big numbers, CPI and retail sales, were positive. Prices were up less than expected and increased at the lowest rate in four months. Retail sales were a little sluggish but not terrible. Those two things add up to a greater likelihood of Fed rate cuts this year. Investors could be happy with that under normal circumstances. Inflation is fading. The economy is slowing but not too much. And the Fed will probably cut rates.

The market might be able to wrap its arms around the prospect of slower growth now with rate cuts and stronger growth down the road. But tariffs gum up the works. There’s too much uncertainty regarding the economic consequences.

The bulk of the selling may be over. It’s likely been overdone in technology. Plus, eight of the eleven S&P 500 are still higher YTD. There may be more ugly days ahead as there is still a high degree of headline risk. But I don’t believe, at this point, that there is too much downside left.

But even if the selling stops, a quick rebound seems unlikely until the current tariff uncertainty dissipates. That could happen tomorrow. A deal could be announced at any time. But no one knows where these tariff issues will go in the short term. We’ll have to wait and see. For now, I’ll be happy with an end to the selling.

Recent Activity

February 26
UnitedHealth Group Inc. (UNH) – Rating change “BUY” to “HOLD”

March 5
Constellation Energy Corporation (CEG) – Rating change “HOLD” to “BUY”

March 12
Cheniere Energy Partners, L.P. (CQP) – Rating change “BUY” to “HOLD”
FS KKR Capital Corp. (FSK) – Rating change “BUY” to “HOLD”
Main Street Capital Corporation (MAIN) – Rating change “BUY” to “HOLD”
Cheniere Energy, Inc. (LNG) – Rating change “BUY” to “HOLD”
Purchased Waste Management, Inc. (WM) - $223

March 19
Brookfield Infrastructure Partners (BIP) – Rating change “BUY” to “HOLD”

High Yield Tier

AGNC Investment Corporation (AGNC – yield 13.9%) – Sure, this mortgage REIT cooled off a bit amid the market correction. But it has still returned 15% YTD. It’s been one of the more stable stocks over the past month. After a rough couple of years with rising inflation and interest rates, this mortgage REIT is having a good year so far. Hopefully, it can keep going. The REIT reported solid earnings this quarter. AGNC has had a bad run over the last couple of years and it’s due for a significant turnaround. We’ll see if it can maintain the momentum and make a run back past the recent high. BUY

Rating change – “BUY” to “HOLD”

Brookfield Infrastructure Partners (BIP – yield 6.0%) – It’s disappointing. The upside of this underperforming stock is that it’s defensive. But it sold down along with everything else in the recent turmoil. That’s weak sauce. BIP better show some chops soon or it will be cut loose. It’s perplexing because the business is sound. Earnings beat expectations with 8% FFO (funds from operations) growth for 2024. Brookfield also announced a 6% distribution increase, marking the 16^th consecutive year of payout increases. The business is delivering, but the stock price isn’t. It’s off the lows but it’s still well below the early 2022 high. The stock has not been behaving as expected and is downgraded to a HOLD unless and until it exhibits better relative performance. (This security generates a K1 form at tax time.) HOLD

Cheniere Energy Partners, L.P. (CQP – yield 5.1%) – The stock pulled back a little in the recent market tumult after it surged to a new high after beating revenue estimates on rising LNG demand a few weeks ago. Natural gas is a strong beneficiary of rising electricity demand. It also helps that natural gas is the cleanest fossil fuel and is increasingly seen as a bridge to a clean energy future. U.S. exports of LNG are likely to continue to grow strongly, and CQP is in a great position. That’s why CQP is still up 25% YTD in a down market. It was reduced to a HOLD last week as it pulled off the high and the market got uglier. (This security generates a K1 form at tax time.) HOLD

Enterprise Product Partners (EPD – yield 6.3%) – This slower-moving midstream energy play really proves its worth in times like this. It hasn’t even budged in the falling market. It tends to lag its peers when things are good in the sector, but it makes up for that lack of excitement with a lack of excitement in terrible markets. Despite the tough market recently, EPD is within a dollar of the 52-week high. Enterprise reported solid earnings with 7% earnings growth for the year and a 5% distribution hike, marking the 26^th consecutive year of an increase. 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 13.1%) – This Business Development Company (BDC) seemed like it would crawl slowly higher forever. But the recent specter of less-than-expected economic growth gripped the market and cyclical companies pulled back. FSK has benefited from the increased economic optimism that followed the election as it has a portfolio of small businesses that tend to be economically sensitive. Despite all that, the BDC held tough until this month. But it still hasn’t come down far from the high. But it could pull back more if these slower economic growth fears worsen. HOLD

Main Street Capital Corporation (MAIN – yield 7.3%) – As a BDC, this story is very similar to that of FSK, although the stock hasn’t been quite as resilient. MAIN has returned 32% over the past year but has been trending lower since the beginning of February. 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. If the economy hangs on, the BDC should continue to deliver, but if a slowing economy becomes an increasing problem, the stock price will fall from here. The rating was lowered to HOLD pending economic news. HOLD

ONEOK Inc. (OKE – yield 4.2%) – This more volatile midstream energy company stock had been plunging earlier this month. But it has gained it all back over the last week. OKE was rising fast at the beginning of the year but then got crushed as the natural gas trade unwound, which was an overreaction. ONEOK has reliable revenues and is in an ideal position for strong growth as natural gas production inevitably increases and electricity demand grows. Investors realized this and OKE really spiked higher in the last week and a half. It’s up over 10% in the last ten days. A continued rebound is highly likely when the market stabilizes. BUY

The Williams Companies, Inc. (WMB – yield 3.4%) – This midstream energy company stock is off the highs but not by much. It has held up remarkably well in this market and is still in an uptrend that began in early 2024. WMB was riding high as a natural gas company as electricity demand expectations soared. It took a big hit after the DeepSeek news but has gained just about all of it back. Energy is one of the only stock sectors with positive returns over the last month, and midstream energy companies have been particularly strong. I still like midstream energy for the rest of this year. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.1%) – Not only did this biopharmaceutical company stock run to a new high, but it did so during a market correction. ABBV is showing some strong defensive chops. It did come off the high by a few bucks, but it is still trading at the high point of the recent range and is still very much in an uptrend that began after the earnings report in January. Immunology drugs Skyrizi and Rinvoq collectively have made up for the lost Humira revenue. 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 and is poised for solid earnings growth. BUY

Ally Financial Inc. (ALLY – yield 3.5%) – This online banker has been in the crosshairs of the recent market angst. It had been a strong start to the year but the slower growth narrative that developed last month has pushed ALLY back near the 52-week low. Auto loans, which are the bulk of the business, depend on a healthy auto market. If the economy does slow significantly, it can also negatively affect loan defaults. This stock is cyclical. We’ll hold on for now to see if that slowing economy fear has lasting traction. Hopefully, the selling is overdone, and the stock will bounce back. But we’ll see. BUY

Broadcom Inc. (AVGO – yield 1.2%) – This AI superstar recovered somewhat amid the tech wreck after another stellar earnings report. AVGO has moved off the recent bottom but hasn’t made a significant upside move yet. Broadcom soundly beat expectations with 25% revenue growth and 45% earnings growth and raised guidance for the current quarter. The even bigger news was that AI revenue grew 77% over last year’s quarter and the company reported that it has scored two more large AI chip customers. Tech and AI are getting a comeuppance now. But the AI business is alive and well. Broadcom is going as strong as ever but is being dragged lower by the sector. It will be back. Patience should be well rewarded. BUY

Cheniere Energy, Inc. (LNG – yield 0.9%) Earnings – LNG has had a great week and has recovered all the losses from earlier this month. Cheniere is the best liquid natural gas liquid (LNG) export company stock at a time of rising LNG demand worldwide. The company delivered a great fourth quarter, beating both revenue and earnings estimates. It also posted record LNG production and is in the process of expanding capacity. But the energy sector is taking a hit on slower growth fears and LNG is back to the same level as the beginning of the year after a great start. Sure, the stock will bounce around with the market in the near term. But the strong story is still very much intact with friendlier regulatory environment and rising demand. HOLD

Constellation Energy Corporation (CEG – yield 0.7%) – The market giveth and taketh away. CEG was climbing into the stratosphere as AI and the electricity trade was on fire. But the DeepSeek news killed that trade for now. And the downside is getting as overdone as the upside was. The truth of the stock should be somewhere between the January high and the current the low.

The fear is that AI will require less data than previously thought and data center plans will be stalled and the anticipated growth in electricity won’t occur. Nonsense, electricity demand is sure to grow even if at a lower rate than previously anticipated. And the fears are likely overblown. The two huge recent deals (the Microsoft (MSFT) deal and the Calpine acquisition) will deliver a high level of earnings growth in the years ahead and there may be more new deals coming. The market will regain its footing at some point, and CEG can come back fast. BUY

Digital Realty Trust, Inc. (DLR – yield 3.2%) – 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%. 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 to be a trend this year as the recent troubles probably fade into memory. HOLD

Eli Lilly and Company (LLY – yield 0.7%) – The superstar drug company stock got an unexpected drubbing earlier this month, falling 11%. LLY had been soaring while the market got clobbered until a news event last week. A pipeline weight-loss drug for Novo Nordisk (NVO) reported disappointing results in a trial. Lilly is a big player in the red-hot weight-loss drug sector with its highly popular Zepbound. The weight-loss drug players sold off in sympathy with the Novo news as worry spread that these drugs might not be as good as previously thought. But Novo is a competitor. And Zepbound is killing it. When a type of drug gets this hot, markets tend to overreact, especially in such an unforgiving market. I don’t think this news changes anything. And now, LLY is cheaper. BUY

McKesson Corporation (MCK – yield 0.4%) – Quietly, while nobody is looking, this supply chain pharmaceutical distributor has had an epic rise and made a new all-time high. It’s up 40% since late September. The stock had been knocked down last summer and fall after the company reported supply chain issues with weight-loss drugs. But those problems are behind the company. It should resume its old habit of slowly going higher and higher as it deals in a market that grows all by itself because of the aging population. MCK had been in an uptrend since the middle of December and has spiked higher while the rest of the market languished. BUY

Qualcomm Inc. (QCOM – yield 2.2%) – The mobile device chip company delivered earnings with strong quarterly results and raised guidance for 2025. 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. But 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. Meanwhile, QCOM has been wallowing with the rest of the tech sector. BUY

Toll Brothers, Inc. (TOL – yield 0.9%) – TOL is a cyclical company that doesn’t respond well to a slower economy. But that recent weakness is somewhat tempered by the falling mortgage rates, which makes housing more affordable. The slower growth narrative has hit TOL when it was already down, and the stock is at a 52-week low. It could be that the economic worries don’t have lasting traction. Narratives change often in the market. The longer-term supply/demand dynamic is hugely favorable to this company, and it will rebound eventually. We will hold onto the stock for now in hopes of a rebound when the market stabilizes. HOLD

UnitedHealth Group Inc. (UNH – yield 1.7%) – 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. 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. But the bad news keeps coming. It was downgraded to a HOLD until UNH shows evidence of bottoming out. It has moved off the bottom and is one of the few stocks in the black on Tuesday, which shows some defensive chops. HOLD

Waste Management, Inc. (WM – yield 1.4%) – It’s so far so good for this newest portfolio addition. It’s coming as advertised. The market went to Hell in a handbag over the last week and WM moved higher anyway. You can depend on garbage. As the market plunges and uncertainty swirls, investors are attracted to safety and the relative performance of stocks like WM tends to thrive. Of course, this stock has also performed well in bull markets. It’s a good holding if the market turns around too. BUY

Safe Income Tier

NextEra Energy (NEE – yield 3.2%) – The regulated and clean energy utility stock has done well in this terrible market. It’s up for this month and YTD. It seems like every time the market gets crushed, NEE has a great day. Investors are attracted to its defensive characteristics as a slower economy is feared and uncertainty about tariffs keeps any optimism at bay. But NEE has historically outperformed other defensive stocks significantly. It just got walloped by inflation and rising rates. But rates are falling, and NextEra is poised for even stronger growth ahead and electricity demand rises. BUY

USB Depository Shares (USB-PS – yield 5.7%) – Markets like this are a good time to be in fixed income. Longer-term interest rates are falling and that should have the effect of increasing the price. The ten-year fell from 4.8% to around 4.1% and fixed income is rallying. This preferred stock has endured a tough bond market and should thrive in a good one. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.0%) – 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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