April 24: The current state of the economy is full of cross-currents and therefore difficult to assess. For example, Fidelity Viewpoints notes that:
Higher oil prices have seeped into consumer confidence, according to the latest University of Michigan survey. The April consumer confidence report’s headline index fell to 47.6, an all-time low, which was down 10.7% compared to the prior month. Americans’ inflation expectations jumped sharply amid the ongoing conflict with Iran. Changes in consumer confidence can impact spending, which represents roughly two-thirds of the US economy.
The Schwab Market update for April 24 adds further context by pointing out that one thing to watch is:
Inflation under scrutiny: Today isn’t completely quiet on data, as investors get the final April reading on University of Michigan Consumer Sentiment at 10 a.m. ET. The Briefing.com consensus is 47.6, unchanged from the record-low preliminary figure released earlier this month. Inflation expectations for the long term, which rose to 3.4% in the preliminary report from 3.2% in March, are worth a close look. Any uptick might attract the Fed’s attention, as policymakers remain concerned about keeping long-term inflation expectations anchored. They tend to pay less attention to short-term inflation expectations, which also rose in the preliminary report but are closely tied to gasoline prices. Despite sentiment being in the basement, early indications from earnings season across sectors show consumers continuing to spend, an interesting dichotomy that may point again to the so-called “k-shaped” economy in which high earners keep opening their wallets.
Thus, there appears to be headwinds on the supply-side of the economy related to two factors: 1. tariffs and 2. the oil supply shock caused by apparently unresolvable Iran “situation.” The oil supply shock is reminiscent of the mid 1970s. Adding to this is the possibility of a demand-side collapse comprised of lower income earners. Both the supply-side headwinds and the possible demand-side collapse will hurt the labor market and increase unemployment. There are offsetting inflationary effects with the demand-side collapse bringing prices down and the supply-side shocks pushing prices, such as for gasoline, up by a very large amount.
On top of these problems, we appear to have a government with no leadership or direction, other than to attack voters and citizens, and with no solutions to any economic problems other than lies or ignorance. Not surprisingly, this President is very, very unpopular.
Yet, we have not yet entered a recession. However, the overvalued stock market is looking more and more like Willie Coyote after he runs off a cliff. I would build up some cash and “look out below.”
Given this, some stocks to consider for the near term include: TBPH, DRD, VIST, SNEX, CHWY, and MCY. Some dividend growth stocks include: EC, SBLK, SHIP, ABEV, CRRFY, HSBC, III, KRP, REYN, and VTS. Over the previous three months, the top ETFs were: PSI, IDGT, FTXL, SOXX, and SXD. Most of these were in the semiconductor sector.
For those wanting to develop an investment portfolio of CEFs that earn high dividends to be re-invested or used as income I have several suggestions. All of these are selling at discounts to net asset values. Most should tend to mean-revert in the long-run.
For those with tax sheltered accounts such as 401k’s and that have required minimum distributions after you reach a given age, consider: BDJ, RLTY, UTF, PDX, DHF, PFO, NML, NBXG, SPE, PDX, FTHY, BGB, BANX, EOS, BOE, BGY, BTX, BST, RNP, JRS, BUI, DPG, MEGI, BMEZ, ECF, BCV, NCV, NCZ, IGA and NXG. Making trades will not lead to paying capital gains taxes in these accounts until you take the money out.
For those with non-tax-sheltered investment accounts that require you to report any capital gains and pay taxes on them I have a list of funds that are much more tax friendly with respect to their dividends. These include: HTD, PDT, ETB, ETV, EXG, ETW, ETJ, EVT, ETG, ETO, BST, PML, and FLC. Most of these dividends are either qualified or in the form of long-term capital gains. If you live in Minnesota, you might want to consider NMS for which the dividends are tax exempt at both the State and Federal levels. Moreover, the after-tax return on NMS is relatively high.
Remember that diversification within any type of portfolio is one way to reduce overall investment risk.
That’s all I have for this time. As always, good investing!
April 28 update: Zacks Investment Research has provided an updated analysis on the Iranian situation and what it implies for oil related investments:
| What the Hormuz Crisis Means for Energy Stocksby Jeremy Mullin Stock Strategist and Editor of Zacks Counterstrike and Commodity Innovators Posted on 4/27/26 |
ServicesInvestor ServicesInvestor CollectionETF InvestorHome Run InvestorIncome InvestorStocks Under $10Value InvestorZacks Top 10Innovator ServicesAlternative EnergyBlockchainCommodityHealthcareMarijuanaTechnologyOther ServicesZacks ConfidentialZacks Premium Trading ServicesZacks UltimateBlack Box TraderCounterstrikeHeadline TraderInsider TraderLarge-Cap TraderOptions TraderShort Sell ListSurprise TraderTAZR The S&P 500 and Nasdaq Composite are sitting at all-time highs, driven largely by strength in AI-linked technology names. Despite escalating tensions around the Strait of Hormuz, equity markets have remained remarkably calm.That calm might prove to be misleading as crude oil is still trading in the mid-$90s. In early March, Iran effectively shut the strait, sending tanker traffic sharply lower and war-risk insurance costs surging. Oil responded immediately, with Brent spiking from the low $70s to nearly $120 at its peak. Even after a fragile ceasefire and repeated reopenings, disruptions have persisted and price volatility has followed.Here is what matters for investors: the resolution of this conflict is almost beside the point. The world has just been reminded, in the most expensive way possible, how fragile global energy supply chains really are.That realization creates a structural tailwind for U.S. producers that does not depend on continued escalation.The question is which names are positioned to benefit.How We Got HereThe Strait of Hormuz is a narrow waterway roughly 21 miles wide at its chokepoint, sitting between Iran to the north and Oman to the south. Before the crisis, approximately 20% of the world’s seaborne oil trade and 20% of its LNG passed through it daily. There is no adequate alternative to fill that gap. Saudi Arabia and the UAE have limited overland pipeline capacity, but nowhere near enough to absorb full Gulf export volumes.The arithmetic of the disruption is staggering. The collective oil production of Kuwait, Iraq, Saudi Arabia, and the UAE dropped by a reported 6.7 million barrels per day by March 10, and at least 10 million barrels per day by March 12. For context, the 1973 Arab oil embargo cut roughly 5 million barrels per day. This disruption has already exceeded that threshold by a wide margin.Iran did not need to defeat the U.S. Navy to make this work. It only needed to make the strait too dangerous and too expensive for commercial traffic. War-risk insurance premiums for tanker transits surged from 0.125% to between 0.2% and 0.4% of vessel value per crossing. For a very large crude carrier, that is a quarter of a million dollars per transit. At that price, most shipowners simply stopped sending vessels. Image Source: Zacks Investment ResearchWhere Oil Goes from HereScenario 1: Resolution and De-escalationIf a deal comes out of any upcoming talks and Iran formally reopens the strait, normal traffic can resume.If this happens, expect an immediate drop of $10 to $20 per barrel on a relief trade as speculative long positioning unwinds. But here is what the market is not pricing: supply chain damage, infrastructure destruction, and lingering production outages do not heal overnight.While WTI would likely see a sharp selloff, there would likely be stabilizing in the $75-80 area. That is still a substantial premium to where the year started.Scenario 2: Prolonged StalemateThe ceasefire holds nominally but traffic remains suppressed, and a limbo of sorts sets in as shipping firms continue to avoid the strait. Production from the Gulf states stays constrained and crude oil anchors in the $90 to $110 range.This is arguably where we are right now, and it may persist for months. The political incentives for Iran to fully reopen without meaningful concessions are limited.Scenario 3: Re-escalation.The Islamabad talks collapse and rhetoric gets negative leading to a broken cease fire. Iran formally reimposes a full blockade or escalates attacks on energy infrastructure.In this environment, Goldman Sachs and Barclays have both flagged the potential for a sustained move above $100, with inflation consequences that would redefine the macro environment.  Image Source: Zacks Investment ResearchAll three scenarios have real probability attached to them right now. The market cannot price certainty because there is none. What that means for investors is that energy stocks carry a genuine geopolitical option premium that does not exist in any other sector.You are being paid to own the uncertainty.And there is a longer-arc argument that goes beyond the crisis itself. Even if Hormuz reopens tomorrow, we have already experienced how fragile our global energy supply chains are. Capital will flow toward domestic production, toward infrastructure resilience, toward supply security. That is a multi-year tailwind for American energy producers regardless of how this particular confrontation ends.The Stocks to OwnThe XLE energy ETF is up more than 25% year-to-date. The S&P 500 is up roughly 4% over the same period. The XOP exploration and production ETF is up 30%.If you have been sitting in diversified equity exposure waiting for the broader market to recover, you have been in the wrong place. The only place that has outperformed has been speculative AI related names, that can be very volatile and hard to hold.I want to be positioned in three names that have significant upside and limited downside as dividends will support any short-term drop in the actual price of crude oil.  Image Source: Zacks Investment ResearchExxonMobil (XOM)Exxon is an anchor of any oil portfolio in this environment, and the numbers back it up. The stock is up roughly 21% year-to-date and has recently hit all-time highs. But this up move is not like chasing a tech stock, because the current fundamentals justify the price action.Exxon’s integrated model is what you want when oil is volatile. Upstream operations generate explosive cash flow when crude prices are elevated. Downstream refining and chemicals provide ballast when prices soften. The Permian Basin production footprint, now exceeding 1.5 million barrels of oil equivalent per day following the Pioneer Natural Resources acquisition, gives Exxon some of the lowest-cost production in the industry.Free cash flow exceeds $40 billion annually even at $80 oil. The company has returned over $36 billion to shareholders in the past twelve months through dividends and buybacks, and has now increased its dividend (still over 2.7%) for 43 consecutive years.The stock is a Zacks Rank #1 (Strong Buy) that has a market cap of $620 billion. Exxon’s next earnings are due May 1 and investors should expect a substantial beat of the $1.21 consensus estimate. The highest analyst price target is $195, implying roughly 30% upside from current levels even after the year-to-date run.The bull case: Oil stays elevated through Q2 and Q3. Exxon’s Guyana offshore expansion and LNG investments begin contributing meaningfully to cash flow. The stock re-rates higher as investors realize the earnings power of this company at $90 plus oil is not fully reflected in a single quarter’s multiple.  Image Source: Zacks Investment ResearchEOG Resources (EOG)If ExxonMobil is the integrated fortress, EOG is the pure-play engine. There is a reason people in the industry sometimes call it the Apple of oil. EOG runs its E&P business like a technology company, focusing on efficiency, cost structure, and return on invested capital.EOG has a Zacks Rank of #3 (Hold) and will report earnings on May 5th. The stock has a market cap just over $70 billion and pays a 3% dividend.EOG operates almost exclusively in U.S. shale, which matters in the current environment. American producers are insulated from the direct shipping risks in the Persian Gulf as they do not have tankers sitting at the mouth of the Strait of Hormuz. They benefit from elevated oil prices without bearing the geopolitical exposure that Gulf-dependent producers carry.EOG also runs a shareholder-returns program that combines a base dividend with special dividends tied to cash flow performance. In a high-oil-price environment, those special dividends add up.The bull case: The global supply shock keeps WTI elevated for the next two to three quarters. EOG’s operational discipline means it is capturing every dollar of that price increase at the bottom line without overextending its capital budget. The stock re-rates as investors recognize that a low-cost domestic producer is the cleanest way to own high oil prices without Gulf risk.  Image Source: Zacks Investment ResearchBP (BP)BP brings something few peers are as leveraged to: a global trading operation that can turn volatility into earnings.In the current environment, that matters.In April, BP flagged exceptionally strong oil trading results for Q1, driven by the surge in volatility tied to disruptions around the Strait of Hormuz. Production remains broadly stable, but the real story is earnings sensitivity. Analysts have taken notice, with Citi lifting forecasts on stronger trading, while UBS and BNP Paribas both moved more constructively as a new CEO steps in at a pivotal moment.In a high-price, high-volatility tape, BP sees earnings power expand quickly, with both Brent exposure and trading gains flowing directly into cash flow. If oil holds above $90 through mid-year, the setup turns compelling: stronger trading performance, accelerating cash generation, and an opportunity for management to reset the narrative through balance sheet repair and sharper strategic direction.BP has a Zacks Rank of #2 (Buy), a market cap of $120 billion and pays a dividend of 4.2%The bull case: Volatility persists, trading delivers, and BP re-rates as the market recognizes that current pricing embeds more uncertainty than the underlying earnings power justifies.  Image Source: Zacks Investment ResearchWhat Could Go WrongThere is of course a downside scenario that would derive from a comprehensive peace deal from the Islamabad talks, combined with Iranian oil flowing freely back into the market. This scenario could knock $15 to $25 per barrel off crude prices in a matter of days, despite any infrastructure issues that were impacted from the war.Markets would start to price in a long-term optimistic view that would compress energy sector earnings estimates and likely trigger a significant rotation out of energy stocks.That risk is real and worth sizing around. But it does not change the fundamental calculus of owning the right names in this sector. Position sizing matters, and trimming into strength is always prudent when a geopolitical catalyst is this binary.In SummaryWe are still in what the International Energy Agency has described as an unprecedented disruption in global oil markets.Some analysts have called it sustained, but I would frame it more simply as “structural”.Even if this specific crisis fades, the market has been forced to reassess how dependent it is on a single critical chokepoint. That tends to favor domestic U.S. producers over time.In the near term, the situation around the Strait of Hormuz remains fluid, and the ceasefire is still fragile. That argues for staying invested in the sector, but being selective about exposure and sizing risk appropriately.Energy is sending a clear signal here. The question is how investors choose to respond.Jeremy Mullin is a stock strategist who combines the fundamental power of the Zacks Rank, technical analysis, and computer driven trading to find the best trades. Discover all his current recommendations in the Commodity Innovators and Zacks Counterstrike Newsletter . |
I thought that some of you may benefit from the above analysis.
