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By Nicholas Jasinski | Thursday, January 16
Swell Times for Banks. Stocks couldn't maintain their momentum after yesterday's surge, enduring an up-and-down trading session to close with modest losses on the day. There were plenty of headlines, but little to drive the market convincingly higher or lower.
Today's news began with a new batch of fourth-quarter results, including reports from Bank of America, Morgan Stanley, Taiwan Semiconductor Manufacturing, and UnitedHealth Group.
Barron's Rebecca Ungarino has had the inside track on bank earnings this week. She summed it up today:
With major U.S. lenders and investment banks’ earnings now turned in, one message from the wave of financial results is clear: Times are swell for bankers and traders.
Big firms’ investment banking businesses and trading desks are humming. That’s thanks to a strong economy that has already boosted earnings, interest rates that are lower than a year ago, and a jolt of post-election investor enthusiasm.
Morgan Stanley's quarterly earnings were up 147% from a year ago, driven by growth in investment banking and trading revenues, while Bank of America's also doubled—helped along by higher interest income.
Chip manufacturer Taiwan Semiconductor Manufacturing had a strong quarter thanks to surging demand for high-tech artificial-intelligence hardware. UnitedHealth, meanwhile, warned of trouble in its insurance division. Management expects to pay out a larger share of premiums to cover medical expenses than analysts were forecasting, raising concerns that the industry’s doldrums will extend into the new year.
After all that, investors got December retail sales report, which includes the tail end of the all-important holiday shopping season. Spending didn't rise quite as much as economists' consensus estimate called for, but the miss largely stemmed from a smaller increase in car sales. Overall, the report showed continued consumer resilience and an appetite for shopping.
Sabrina Escobar has all the details here.
Down in Washington D.C., Senators from both parties grilled president-elect Donald Trump's Treasury Secretary nominee Scott Bessent about his plans for the new administration.
Matt Peterson covered the exchange:
In a largely even-toned back and forth with senators, Bessent signaled that he supports Trump’s expansive view of the president’s ability to direct economic policy as he sees fit, including with tariffs and in the president’s relationship with the Federal Reserve. Bessent’s confirmation appears all but assured.
Investors have closely followed Bessent’s views about tariffs. He has previously suggested that he believed they may be softer than the maximalist vision set out by Trump on the campaign trail. Trump has said he will impose 10-20% tariffs on all countries, tariffs up to 60% on China, and new tariffs on Canada and Mexico.
The president may also impose “a more generalized tariff as a revenue raiser,” Bessent said, echoing comments by Trump that the U.S. should return to pre-World War II practices of funding the government through tariff revenue.
Tariffs may be used to defend specific industries or to protect against adversaries, as Trump and President Biden have done on steel and against China, Bessent said in response to senators’ questions. They may also be used for negotiating purposes, Bessent said.
The full cost of tariffs will not be passed on to consumers, Bessent said, citing the history of tariffs and academic theory. “If we were to, say, use a number that has been thrown around in the press of 10% [across-the-board tariffs] then traditionally, the currency appreciates by 4%, so the 10% is not passed through.”
The Bessent hearing also covered the Trump administration’s tax plans, its approach to the Fed, and more. Read all of Matt's coverage here.
By the close, the S&P 500 was down 0.2%, the Dow Jones Industrial Average slipped 0.2%, and the Nasdaq Composite fell 0.9%.
DJIA: -0.16% to 43,153.13
S&P 500: -0.21% to 5,937.34
Nasdaq: -0.89% to 19,338.29
The Hot Stock: DexCom +5.5%
The Biggest Loser: UnitedHealth Group -6.0%
Best Sector: Real Estate +2.5%
Worst Sector: Technology -0.8%
Dividend and Conquer
The prevailing yields on ultra-safe, high-quality bonds these days are putting dividend stocks in a tough spot.
The 10-year U.S. Treasury note yields about 4.6%, while investment-grade corporate bonds pay out slightly more. Compare that to the S&P 500's 1.2% yield. Even the SPDR S&P Dividend exchange-traded fund yields merely 2.6%.
Interest-rate anxiety has weighed on the group: the ETF is down some 8% over the past three months, while the S&P 500 has added 2%. The 10-year yield has climbed by about half a percentage point over the same stretch.
That doesn't mean investors should now shun dividend stocks, writes Barron's Paul La Monica.
He has several recommendations:
[Investors] may just need to look for companies and sectors that offer a good mix of income and growth. They also could look to sectors that could benefit from economic factors, such as at energy and natural resources stocks that pay dividends and may get a boost from the recent spike in oil and other commodity prices.
The VanEck Energy Income ETF is up 10% in the past three months and has gained more than 4% already during just the first few trading days of 2025. The fund owns several major pipeline companies, which tend to offer high dividend yields and benefit from rising oil prices. Williams Cos., ONEOK, Enbridge, Cheniere Energy, and Kinder Morgan are the top five holdings. The fund has an average yield of 3.2%.
The Amplify Natural Resources Dividend Income ETF is another fund riding the recent spike in oil prices. The ETF, which has Brazilian energy giant Petrobras as its top holding and owns several high-yielding Master Limited Partnerships (MLPs) such as Western Midstream Partners, Energy Transfer, and MPLX as top holdings, is up 4.5% in 2025. The ETF yields 5.6%.
Paul adds overseas dividend payers as an attractive area to hunt for yields, with plenty of generous payouts and generally lower valuations than U.S. peers. The WisdomTree International Hedged Quality Dividend Growth Fund and Franklin International Low Volatility High Dividend Index ETF are two options there.
Find more of Paul's dividend picks here.
Barron's Al Root suggests a different approach. He cites recent research by Wolfe Research Chief Investment Strategist Chris Senyek, who looked at several years of past performance by companies initiating a dividend or changing their payout.
Here's what Senyek found, via Al:
Senyek looks for companies that can start a dividend for the first time and companies that have recently cut their payouts. Initiating a dividend signals that management is confident about achieving a consistent level of earnings and cash flow. It also opens up a new investor base for the stocks.
Shares of dividend cutters underperform leading up to the cut, perform in line with the market for the first few months after the cut, and then outperform starting at some six months, Senyek says. The trick is to pick companies at risk of a cut while revisiting shares of companies that slashed a payout a few months back.
To predict cuts, he looks for companies with high dividend yields, high debt, and high payout ratios. He has a list of more than 50 stocks. Six that Wall Street analysts don’t like right now include Kohl’s, Vail Resorts, Wendy’s, Huntsman, Kinetik, and Ardagh Metal Packaging.
The six yield an average of about 8%, have paid out far more in dividends than they have earned in the past 12 months, and have an average debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda, of about five times. A ratio of two to three times would be considered relatively safe. Less than 30% of analysts covering those stocks rate them Buy. They look risky.
Keep an eye on those for later, should a dividend cut materialize.
As for potential new dividend payers, Senyek looks for companies with strong free-cash-flow yields that are buying back stock and don’t have too much debt. A half dozen examples that also have strong ratings from analysts are Skechers, Crocs, Regeneron Pharmaceuticals, Robinhood Markets, Mattel, and EPAM Systems. Watch those for a possible dividend announcement in 2025.
Al has more here.
The Calendar
Citizens Financial Group, Fastenal, Huntington Bancshares, Regions Financial, SLB, State Street, and Truist Financial report results tomorrow.
The Census Bureau releases new residential construction data for December. The consensus call is for a seasonally adjusted annual rate of 1.3 million privately-owned housing starts, slightly more than in November.
What We're Reading Today
- It’s Trump vs. the Budget Hawks. How the GOP Spending Fight Could Spread to Wall Street.
- Hershey Has Been a Bitter Pill for Investors. Why It's Poised for Sweet Gains.
- UnitedHealth’s Earnings Point to High Medical Costs in 2025. Health Insurer Stocks Sank.
- Blue Origin Reached Orbit. The Booster Rocket Didn’t Make It.
- Battery-Powered Cars Had a Banner Year. There’s a Risk for Car Stocks.
- Trump Has a Path to Free Fannie, Freddie, Ackman Says. The Stocks Are Dropping.
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