That’s a nightmare for someone that preaches the power of collecting an above average yield on your investments. Yield is how we measure the horsepower of our money using an annualized percentage so we can compare different types of opportunities. Right now, my money is akin to a car sitting up on bricks.
It’s not for lack of trying.
I’ve been running my stock screeners weekly… and some weeks daily. My watchlist keeps growing at an alarming rate, but I can always seem to poke holes in my argument. And if I find something I do like, the current price just seems too high.
The good news is that I think the time I’ve been waiting for is just around the corner.
The Trickle Through
Unless you’ve been living under a rock or in a glorious tech-free retreat, you probably know that the FOMC hiked the fed funds rate last week. They had been on a pause since late last year. Doubt was spreading that the Fed would step in to get us back to its 2% inflation goal.
Now the pendulum has swung in the other direction.
Chairman Warsh, of course, ignored specific questions about more hikes through the end of the year. But the dot plot shows us that the committee is eyeing at least one more, potentially two.
When rates go up, generally stocks should go down.
Higher borrowing costs mean businesses have to pay more to service their debt as much of it is floating with a floor. Even if their current rate remains unchanged, new debt will certainly be at a higher rate which can slow down expansion plans. Future valuations should be readjusted and discounted accordingly.
Then there’s also the fact that higher bond yields can coerce some people to pull their money from stocks and put it into bonds. Treasury ETFs and Fixed Income ETFs saw substantial inflows of about $9 billion last week… while US equity ETFs saw net outflows of about $1.1 billion.
So, only half of my expectations are coming true. Investors are looking towards bonds, but they are not exiting the stock market at the same rate. The S&P 500 is still chugging higher, almost back to its 52-week high. Our opportunity is coming, but not overnight.
Optimism Has to Shake Out
It’s not just companies that will be hit with higher borrowing rates. Consumers are already stretched thin by higher grocery prices and sky-high gasoline prices. Some people are already relying on plastic to fill the gap between paychecks. Variable rate credit cards are tied to the prime rate dictated by the fed funds rate.
But investors are not going to price in the higher borrowing costs for either group until it becomes tangible in earnings figures. That’s not going to happen in the third quarter which ends in just one week.
I would bet that every single management team is currently preparing their remarks on how the interest rate hike will affect their business. They know analysts will certainly ask about it in the earnings call. I don’t think it will matter at all what they say.
Investors have been so optimistic for the past seven or so earnings seasons that it really doesn’t matter. They latch onto the positive and sweep the challenges under the rug. That can only last for one more quarter. When the full-year earnings are released in January, they will have to pull their heads out of the sand. That’s when I think the return to rational valuations will begin.
Let me be clear: I’m not predicting a broad market crash. I am, however, saying that some of the air will be let out of the valuation balloon. And that’s the buying opportunity I’ve been waiting for.
But what should we do until then?
Action Steps Right Now
First, take a look at your gains. If you have big gains sitting on the table, it’s time to think about your exit strategy. I know this can be hard as a dividend investor. Your shares are up, but that wasn’t the original point of the investment. You have a great entry price for a great effective yield.
If you don’t want to sell right now, come up with your strategy. Maybe you pick a target price to sell. That might be a higher “goal” price. Or it could be a lower “protective price.” Maybe you will sell if shares drop a certain percentage in a week. Make a plan now before the optimism fades. It could happen sooner than I think.
Second, consider selling covered calls on your positions. Whenever I sell a covered call, I decide that it’s okay if I have to sell my shares on the expiration date. This can be part of your exit strategy on your larger gains as well.
This is a way to harness short-term volatility and unlock extra income.
Finally, add to your favorite undervalued positions sparingly.
Okay, I know I was just grumbling about nowhere to put some of the money from my recent payout. I have been putting a little of it to work in the markets, but nowhere near as much as I would like. I have sparingly added to some positions that the market is simply undervaluing right now.
I still like VICI Properties (VICI) in my REIT holdings. The experiential real estate giant has been expanding its portfolio, but casinos are still at its core. Ceasars Entertainment is its largest tenant, and it looks as though it will be taken private before the end of the year. Investors are worried about the uncertainty here.
I’m still bullish long-term. However, shares have dropped this year boosting VICI’s current yield to 7.7%. I’m steadily adding to my position.
Kimberly-Clark (KMB) is another position I’ve been adding to. Shares are down 21% over the past year, pushing its current yield to 5.2%. The company is in the latter stages of seeking regulatory approval for the acquisition of Kenvue Inc. (KVUE) to truly take over the real estate in your bathroom cabinets.
Or add to whatever your favorite undervalued position is in your portfolio right now. If it’s beaten down and you still like it long term, it’s a good candidate.
For more income, now and in the future,
Kelly Green
Originally published September 23, 2026
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Facts Only
* The FOMC hiked the fed funds rate last week.
* The committee is eyeing at least one more, potentially two, hikes through the end of the year.
* Higher borrowing costs mean businesses must pay more to service debt.
* New debt will be at a higher rate, which can slow expansion plans.
* Treasury ETFs and Fixed Income ETFs saw inflows of about $9 billion last week.
* US equity ETFs saw net outflows of about $1.1 billion last week.
* The S&P 500 is still moving higher.
* Investors are not yet pricing in the higher borrowing costs for consumers or businesses in earnings figures.
* VICI Properties’ current yield is 7.7% due to share price drops.
* Kimberly-Clark’s current yield is 5.2%.
* The author suggests selling covered calls and adding sparingly to undervalued positions as immediate actions.
Executive Summary
The author observes that the Federal Reserve's recent hike in the federal funds rate shifts the investment landscape, implying that while some investors are moving toward bonds, the broader market remains resilient. Higher borrowing costs theoretically impact businesses by increasing debt servicing costs and potentially slowing expansion plans, which should lead to revaluation of future assets. Simultaneously, higher yields have driven capital into fixed income, evidenced by substantial inflows into Treasury and Fixed Income ETFs while equity ETFs experienced net outflows. The author suggests that investors are not yet pricing in the full impact of these rate changes across the economy or corporate earnings, as the necessary adjustments are expected to materialize in later earnings reports rather than immediately.
The author outlines potential action steps for current investors: reassessing existing gains by considering exit strategies, utilizing strategies like selling covered calls to harvest volatility and income, and cautiously adding capital to undervalued positions. Specific examples given include VICI Properties and Kimberly-Clark, suggesting an interest in real estate and specific industrial/consumer goods sectors. The overall tone is one of cautious optimism, anticipating a future correction in valuations based on delayed corporate reaction to rate increases.
Full Take
The narrative operates on the tension between perceived economic headwinds (rising rates impacting corporate earnings) and present market optimism. The central pattern involves deferred realization of valuation adjustments, where current investor sentiment remains decoupled from the tangible impact of rate hikes until official earnings reports. This creates an asymmetry: investors are reacting to the rate movement but have not yet priced in the consequences for asset valuations, leading to a delayed potential for a correction.
The suggestion to focus on specific undervalued assets like VICI and KMB suggests a pattern of seeking yield enhancement within perceived stability. The cautious advice on exiting gains and generating income through covered calls is a strategy aimed at managing short-term volatility while waiting for the larger structural shift. The implication is that market momentum is being managed by psychological factors—optimism masking underlying quantitative shifts—rather than immediate, verifiable fundamentals. The framework relies on the assumption that delayed realization of negative earnings impacts will trigger a necessary repricing.
Bridge Questions: If market valuations do not adjust in Q4 earnings as anticipated, what external data points would signal that investors are successfully ignoring future rate impacts? How does the psychological inertia of current investor optimism interact with potential future deflationary pressures to shift expectations? What specific metrics should be prioritized over overall yield when assessing whether a valuation balloon is truly being deflated or merely postponed?
Sentinel — Human
The text reads like an experienced investor offering a strategic opinion and action plan based on economic trends, exhibiting a strong personal voice rather than purely objective reporting.