Most indicators are misleading investors right now, with some looking rosy and others seemingly saying it’s time to panic.
So today we’re going to parse through the noise and look at what’s really going on under the hood of the US economy.
Then I’m going to give you our latest perspective on what to do with stocks—and funds (specifically closed-end funds) that hold them. We’re also going to dig into one bond fund yielding an outsized 13% that’s set to benefit as uncertainty grows.
Investor “Mood Ring” Says It’s Time to Panic …
Consider the CNN Fear & Greed index, a closely watched sentiment indicator. As I write this, it’s showing a five-alarm fire.
Source: CNN
Meantime, let’s look at the VIX, the market’s so-called “fear gauge.” You’d think that with the S&P 500 just closing out its worst quarter since 2022, the VIX would be spiking. Instead, crickets.
… But Another “Fear Gauge” Is Only a Little Concerned
The VIX, which measures stock volatility, is at 22.3 as I write this—somewhat high territory compared to the last decade, but still pretty low in light of the worry the market has experienced going into April 2 tariff announcements. But in really moody times, this indicator rises to over 25, which it did several times in—you guessed it—2022.
I’m guessing that if you’re reading this, you may also be thinking of 2022 right now, since that year also saw fears of inflation and a stagnant economy that caused markets to sell off.
So today we’re going to drill into that and look at two reasons why, no, 2025 is not 2022 all over again. We’ll do it by looking at both inflation and stagnation to see if, in fact, either (or both!) are reasons for investors to worry.
(Sneak preview: The answer is no—but we do need to be more selective and look at areas beyond stocks, like corporate bonds, including the bond fund we’ll talk about below.)
When It Comes to Inflation, Emotion Can Sometimes Cloud the Data
I dislike pointing this out, because I almost always get comments from readers who (rightly!) tell me that prices keep going up in supermarkets and elsewhere. But, well …
Inflation Is Moving Lower
Inflation, on a year-over-year basis, remains below 3%, according to the consumer price index (CPI). That’s far from the alarming levels we saw in 2022. To be sure, prices are still going up: And as upsetting as that’s been for consumers, the important point for the stock market is the question of how much.
We can consider the current rise of 3% year-over-year to be a safe zone. And if you look at the right side of the chart above, you can see that since inflation fell off a cliff in early 2023, it has been slowly (but inconsistently) creeping closer to 2%.
The verdict here is clear: Inflation is not trending back to the eye-watering levels we saw in 2022. Yes, we do need to keep an eye on this, but it isn’t reason to panic. But what about the economy as a whole?
BlackRock Global Chief Investment Strategist Wei Li pointed to this chart recently when she said in a recent LinkedIn post that corporate earnings are rising “still above the historical trend of 6% to 7%.” In other words, companies are not only growing profits, but they are doing so at a stronger rate than they tend to, on average.
It’s also worth noting that the S&P 500 saw earnings rise 17.8% in the fourth quarter of 2024, the fastest pace since the fourth quarter of 2021, when companies were comparing themselves against the economic shutdowns of 2020. That gives them some additional resilience in the face of tariffs and other unpredictable changes.
Investors are totally ignoring that earnings number, as well as the fact that 77% of S&P 500 companies exceeded EPS estimates when they reported earnings in the last quarter. That earnings growth is accompanied by 4.2% revenue growth at the start of 2025 and 2.8% spending growth by consumers after we take inflation into account.
I know this is a lot to take in, but the takeaway is that the average American is spending more not just because prices are going up, but because they’re buying more goods and services.
Companies, in turn, are taking in more revenue and expanding profit margins. And they’re making their operations more efficient, in turn causing their earnings to rise, too.
All of this is good news for investors. So the recent market price decline is a buying opportunity.
Is It Time to Buy CEFs?
My beat, of course, is CEFs—often-ignored funds that yield around 8% on average. So let me talk about what all this means for our CEF strategy. The short answer is that we need to be very selective in this environment—and target other corners of the CEF market beyond those funds that hold stocks.
In 2025, we’ve seen CEFs hold their own for the most part, with average discounts to net asset value (NAV) for all CEFs around 5%, with stock funds at 6.2%. That might sound generous, but discounts were more like 8.5% in 2022, so this tells us there are fewer CEFs that are generously discounted.
This is why we’ve been holding off on adding more equity CEFs to our portfolio this year, choosing to focus instead on corporate-bond CEFs. As I write this, we have just two tickers in our equity-CEF bucket.
And we continue to like bond funds—especially those whose managers have been able to buy higher-yielding bonds with long durations. Those bonds are especially well-positioned as interest rates fall (something I see happening as the economy slows, which I expect as we move into the second half of 2025).
Case in point: the Nuveen Core Plus Impact Fund (NYSE:NPCT), a 13%-yielder trading at a 7% discount to NAV today. As I write this, it holds 132 bonds with an average leverage-adjusted effective duration (which measures how much a bond is likely to go up or down in value in relation to interest rates) of 8.7 years.
That means NPCT will be able to bring in its bonds’ income streams for nearly a decade. And those bonds’ value will only increase as rates decline. The fact that we can pick this one up at a 7% discount to the value of the bonds it holds is a nice bonus and suggests more price upside ahead.
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Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."