And just like that, the market forgot all about tariffs.

#-ad_banner-#In one shaky four-day stretch in early June, the Dow surrendered nearly 800 points amid heightened trade war fears. Flash forward a few weeks, and the large-cap market barometer has recouped all those losses and then some — adding roughly 1,200 points since June 3. The bearish to bullish shift in investor sentiment coincides with dovish talk from the world’s central banks and a growing probability of monetary tightening by the end of summer. 

Earlier last week, futures traders were pricing in a 55% chance that the Fed would lower rates by 50 basis points at its September meeting. The next most likely outcome (23%) was a quarter-point cut, followed by a 19% chance of a 75-basis point cut and a slim 3% probability that rates remain unchanged.

While it wasn’t specifically stated (you can do the math), that implied a zero percent chance of a rate hike.

The Fed didn’t make any moves at last week’s meeting, leaving short-term lending rates at 2.25% to 2.50%. But post-game comments from Fed chief Jerome Powell suggested that rate cuts could be coming sooner rather than later. Citing the cooler global economy and ongoing impact of tariffs, the Fed Chief said rather plainly that “the case for more accommodative policy has strengthened.”

Many observers took that to mean that a rate cut is imminent, most likely at the upcoming meeting in July. Looser interest rates can’t come soon enough for many investors. Of course, some groups will benefit more than others. 

Winners & Losers
Changing Fed policy has driven down yields on short-term treasuries faster than the yield on longer-term notes. In fact, the spread between 5-year and 30-year Treasuries has stretched to the widest level since 2017. That bodes well for banks and other lenders (not to mention leveraged closed-end funds). Rate-sensitive sectors such as REITs and utilities have also seen an uptick in buying interest.

But the biggest winner this week has been the energy sector, with geopolitical turbulence in Iran sending crude prices screaming higher. This undervalued group may have gotten just the catalyst it needed and will likely get more attention in upcoming issues of my premium newsletter, Daily Paycheck.

On that note, two longtime holdings, Nuveen Real Estate (NYSE: JRS) and Reaves Utility Income (NYSE: UTG), have both rallied to new 52-week highs in recent days. 

Reaves, in particular, has been on fire. But that’s no surprise to us… Awarded a top 5-star rating by Morningstar, UTG has used a broad mix of utilities, MLPs and telecoms (all steady cash generators) to achieve annualized returns of 19.5% over the past decade — ranking in the category’s top 1%.

But the good news keeps coming. Beginning in July, monthly distributions are rising to $0.18 per share from $0.17. The 6% increase lifts the annual payout to $2.16 per share — putting the yield at 6.1%, three times the market average.

UTG eschews returns of capital, which gradually erode net asset value (NAV) over time. So monthly distributions have been rising at a measured pace and have been fixed at $0.17 per share since April 2018. That cautious approach has let NAV climb from the upper-$20s to the mid-$30s over the past year. But citing expectations that the portfolio will generate sufficient income and capital gains, UTG is now raising its distribution for the eleventh time since its launch in 2004. 

Action To Take
It’s important to keep tabs on what’s “in favor” in the broader market, so the sectors I’ve named here are good places to start if you’re looking for fresh ideas. And in particular, if you’re looking for a conservative fund with a high yield, then you should consider UTG. Despite already being up more than 200% on the fund, it remains rated as a “Buy” for Daily Paycheck subscribers. 

That being said, I still remain leery of a potential pullback. There are many wild cards in play, any one of which could easily dampen this enthusiasm. But for now, the market is in a giving mood. Several of our holdings over at Daily Paycheck are about to reward us with increased dividend payments — and my subscribers and I are more than happy to collect.