We’ll See Where the Market Leans After Labor Day
The market tends to be lackluster in the late summer. But that goes double for the last week of the summer.
Unless there is a riveting headline, the overall market is likely in a holding pattern until the rubber hits the road next week after Labor Day. Sobered up investors back from vacation will take a fresh look at things after they wrap up the summer and come back from vacation. What will they see?
The two potential catalysts of last week, Nvidia (NVDA) earnings and Jackson Hole, largely canceled each other out. Nvidia killed it again on earnings, but the Fed was more hawkish than expected. Continuing AI windfalls will face high interest rates. Which will concern the market more?
The splendid first seven months were prompted by falling inflation, the Fed nearing the end of the hiking cycle, and no recession in sight. But the still strong economy was tempered by the false belief in a looming recession that kept interest rates down.
Stocks got the benefit of a perceived slowing economy in lower interest rates and falling inflation without an actual slowing economy. It was the best of both worlds. But markets seemed to have given up on the recession scenario for now. That’s why interest rates hit the highest point yet. High interest rates, possible rising inflation, and a still hawkish Fed are consequences of a strong economy that can be bad for stocks.
A good economy has negative consequences for the market. A slowing economy can relieve some of those consequences, but weaker economic activity can also hurt company profits. There is potential that the market could go from a Goldilocks scenario to a catch-22.
Anything is possible. The portfolio has positions that should benefit if the rally continues as well as positions that should deliver strong relative performance if the economy slows.
Past Month Activity
August 8
Sold Star Bulk Carriers Corp. (SBLK)
August 18
V August 18 $235 calls at $9.00 – Expired
GSL August 18 $20 calls at $1.25 – Expired
Visa Inc. (V) stock – Called
August 22
Purchased Xcel Energy inc. (XEL) - $57.95
Sell HES October 20 $155 calls at $9.00 or better
August 29
SELL Global Ship Leasing (GSL)
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 4.0%
The cutting-edge biopharmaceutical company stock had been having a bad year as its number one drug Humira’s U.S. patent expired this year. But since the middle of July, ABBV is up 13% and holding near the recent high despite the down market so far in August. The company reported earnings that beat on both earnings and revenue and raised guidance for the year. The report emboldens the notion that the revenue drop from the Humira patent expiration will be very temporary and AbbVie will turn the corner sooner than expected. BUY
Digital Realty Trust (DLR)
Yield: 4.1%
This data center REIT is one of few stocks on the market that is actually higher for the month of August. Digital reported better-than-expected earnings because of strong data center demand and solid growth. Even more importantly, the company assuaged fears that had driven the stock price down earlier this year by executing capital recycling plans that raised over $2 billion by selling joint venture assets. The move strengthens the balance sheet and secures the dividend. Now the REIT is poised to benefit from accelerating data center demand growth prompted by the AI craze. It got a bump after Nvidia’s earnings and has good momentum. BUY
Rating change “HOLD” to “SELL”
Global Ship Lease, Inc. (GSL)
Yield: 8.0%
Individually, this best-in-class shipping company has been solid. Global has an expanded fleet with long-term contracts and higher than current rates and reported earnings that beat estimates with revenue growth of 4.9% and earnings per share growth of 14.8% from last year’s quarter. The longer-term supply/demand dynamic is solid as well. But shipping is an industry at the mercy of macroeconomic factors.
The failure of China’s recovery bodes poorly for the global economy and shipping rates have been falling as a result. GSL is currently at the high end of the recent range ahead of what is likely a challenging period over the rest of this year and the beginning of next year. We’ll part ways with GSL now, but secured a covered call to boost total return and can buy the stock in the future when it has a better near-term prognosis and momentum. SELL
Hess Corporation (HES)
Yield: 1.1%
Oil prices hit the highest level since last year on strong demand and limited supply. Exploration and production company stock HES has moved higher along with oil. Energy prices have leveled off so far in August, but prices may start moving up again in the fall, as many predict. Hess’ high margins give it powerful leverage in a rising energy price environment. The target call price wasn’t reached last week as the stock pulled back. But we might get the price this week. BUY
Intel Corp, (INTC)
Yield: 1.5%
August has been a reckoning for technology stocks. The sector has plunged as interest rates are more likely to remain elevated amid the better-than-expected performance of the economy. However, the pullback provides a necessary consolidation after a big run-up and is getting somewhat of a bump after NVDA earnings once again blew away expectations. Also, Intel’s performance might be turning the corner as earnings beat estimates and the company returned to profitability. BUY
NextEra Energy, Inc. (NEE)
Yield: 2.7%
The weakness continues. This combination regulated and clean energy utility stock just hit a new 52-week low. The utility sector remains under pressure both in the broadening rally and the August selloff. But the operational performance is solid. The utility grew earnings 8.6% in the second quarter and 11% in the first half versus the same periods last year. It also has predictably solid earnings going forward because of a considerable project backlog. NEE has historically not only blown away utility sector performance but the overall market as well. It’s selling near a multi-year low and is poised for a strong rebound. BUY
ONEOK, Inc. (OKE)
Yield: 5.9%
The midstream energy company reported earnings that beat on EPS and missed on revenue. ONEOK also raised earnings guidance for the year. The stock had nice upside after the report after pulling back for two weeks prior as the overall market weakened. OKE leveled off in August after an uptrend since the end of May. We’ll see if the stock can regain some upside traction in the fall. Longer term the stock looks solid as the company is expected to grow revenue by an average of 10% per year over the next three years. HOLD
Realty Income Corp. (O)
Yield: 5.5%
This legendary monthly income stock reported earnings that slightly beat estimates. It also revealed a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. The REIT has been solid, but this market is not rewarding solid at this point. O currently sells well below the pre-pandemic high, despite having higher earnings. But income and safety will come back into vogue eventually. BUY
Qualcomm Corp. (QCOM)
Yield: 2.6%
Not only has it been an ugly market for technology stocks this month, but Qualcomm reported earnings results that the market hated. Earnings were down 37% year over year and revenues fell 23%. It’s because of lower smartphone sales as the 5G upgrade cycle ended and economic conditions tightened. However, smartphones sales may be close to bottom as they are expected to increase in 2024 and Qualcomm is expected to resume earnings and revenue growth. This slump was expected and that’s why QCOM has underperformed. But it is cheap now. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.2%
The midstream energy company reported earnings that surpassed estimates and the stock got a further boost on the news. Volumes of throughput were solidly higher, and earnings grew 8%. That’s a far cry from the 30%-plus earnings growth of last quarter, but this lull in acquisitions coming online was expected. It’s solid growth under the circumstances. In addition, recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. The stock is now up over 20% since the end of May and made a new 52-week high in August while the market was selling off. We’ll see if WMB continues the good momentum in the fall. BUY
Xcel Energy Inc. (XEL)
Yield: 3.6%
This clean energy utility hasn’t fared any better than NEE in a very tough market for utilities. XEL has been trending lower since the beginning of April and is wallowing near the 52-week low. But things change and XEL is cheap and one of the best utility stocks to own. These are dark days for utilities. But things always change and XEL and NEE are selling at 52-week lows in an expensive market and ahead of a likely slowing economy. BUY
Existing Call Trades
Sell OKE Sep 15 $65 calls at $3.20 or better
OKE is selling a few cents above the strike price with two and a half weeks to go before options expiration. We’ll get a better idea what the fall has in store for OKE when the rubber hits the road after Labor Day. Either way, we have secured yet another round of great income from this stock.
Sell HES October 20 $155 calls at $9.00 or better – Pending
This call premium never hit the $9 target since they were targeted in last week’s monthly issue. HES pulled back last week as oil prices fell. That’s OK. The stock could move right back up this week. The $9 target price is still in force and I will reevaluate next week if it isn’t reached.
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 | $110.32 | $130.00 | 2.90% | -14.08% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.65 | NA | 8.04% | -15.90% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $33.25 | $35.00 | 1.50% | -13.59% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.67 | $38.00 | 5.16% | 3.06% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $64.95 | NA | 5.88% | 9.60% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $67.96 | $85.00 | 2.75% | -12.12% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $150.60 | $140.00 | 1.16% | 14.25% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $56.00 | $62.00 | 5.48% | -6.17% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $125.95 | $125.00 | 3.87% | 7.37% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $146.69 | $150.00 | 4.04% | 3.57% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $57.58 | $65.00 | 3.61% | -0.64% |
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE $65 Sep 15th call | OKE230915C00060000 | Sell | 7/25/23 | $3.20 | $1.94 | $3.20 | 4.92% |
| HES $155 Oct 20th call | HES231020C00155000 | Sell Pending | $5.69 | $9.00 | |||
| as of close on 8/25/2023 | |||||||
| SOLD STOCKS | |||||||
| Stock Name | 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 | 4/14.2022 | $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% |
| 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 | 7/20/22 | $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 | 10.5 | 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% | |