The market has been fantastic. But it was driven higher by technology. Now, technology is rolling over. Will the market roll over too, or will the neglected sectors pick up the slack? Meanwhile, I like some of the underperforming REITs and other conservative dividend-paying stocks that are cheap and high yielding, including Brookfield Infrastructure Partners LP (BIP), says Tom Hutchinson, editor of Cabot Dividend Investor.
The S&P 500 was recently up more than 14% year-to-date, a nearly 30% annual pace. The index is also up over 30% since the low of last October. The reason for the market’s advance is technology stocks, driven higher primarily by the Artificial Intelligence (AI) catalyst.
Without technology, the market would be languishing. But technology stocks may be running out of gas. The tech-heavy Nasdaq index has been falling since last week. Star-performing portfolio positions Broadcom Inc. (AVGO) and Qualcomm Inc. (QCOM) were down 12% and 15%, respectively, in the last week alone. The reason is likely investor profit-taking after a huge surge in AI-related stocks following the last round of earnings reports.
Brookfield Infrastructure Partners LP (BIP)
This kind of volatility is not usual in a strong bull market such as we are seeing in technology stocks with AI exposure. But if the rally in these stocks has indeed paused, what will the market do without the force that has propelled it higher all year?
Hopefully, some of the underperforming and high-yielding values will compel investors. The midstream energy stocks have already started performing better in the midst of the tech decline.
As for BIP, the infrastructure company used to be a market superstar in years past. But it has been going sideways since the end of last year even as the operational performance has been sound.
Brookfield reported strong earnings and the company rallied strongly off the early-April dip. The company also raised the quarterly dividend by 6%. During sideways periods, you still get the dividend and there could be a big move in store if interest rates trend significantly lower.
Recommended Action: Buy BIP.
