Finally the fear on Wall Street is abating a bit. The CBOE Volatility Index (VIX) closed red on Monday in spite of a red market day. Reaction to the news from the Federal Reserve was surprisingly excellent. The indices had their best week since September 2020. After a sluggish start on the 14th, AT&T (NYSE:T) stock rallied 2%.
The languishing continues with T stock. Even on strong weeks, it still manages to underwhelm. But that’s part of its charm, leaving room for a surge in demand.
Today’s opportunity is to catch a substantial swing-trade opportunity in the short term. But this can also double as an investment.
T stock could be setting up for another bullish run like in December. When stocks revisit a prior baseline, they tend to find buyers lurking. Meanwhile, there should be profit-taking points within weeks or months depending on the investor time frames.
Last week’s market rally was counterintuitive, which further stresses the bizarre market conditions. Investors must remain vigilant to avoid chasing runaway rallies.
That won’t be much of a problem with AT&T since it’s been lagging for a long while. Traders enjoyed a 25% burst higher last December, but it has since given it back. This potential trade could be its second coming.
T Stock and the Outside Risks
The current geopolitical risks are very serious because they involve potential war with Russia. While the fighting is local, the tension is global. Investors should leave room for error whenever possible and resist taking full positions all at once. If the international headlines expand to wider military involvement, markets will suffer badly.
And then there is the Fed’s threat to the economy.
Chairman Jerome Powell confirmed an assertive inflation fight. Somehow, Fed officials went from convincing us inflation was transitory to complete panic. The result? Expect aggressive rate hikes and balance sheet runoff. Luckily, the Fed is doing this because “the economy is very strong,” as Powell said in a speech last Wednesday.
For the time being, the Fed’s rhetoric will pressure equity prices. I expect this to be temporary until Wall Street completely accepts it.
T stock rallies have been meek but at least it showed life. When stocks rally in the face of bad news, they may have run out of sellers. The company’s fundamentals are not great, but improving. Despite mistakes, managers are righting the ship. The company is old enough that it has earned benefit of the doubt.
More Reasons to Own It
The only ingredient left is time — and therein lies the opportunity. Over the next few months, we may see improvements along those lines.
Meanwhile, T stock still pays a handsome dividend. Although it is not as safe as Chevron (NYSE:CVX) or Exxon (NYSE:XOM), the payout is substantial.
Fixed-income sources are rare anywhere else. The U.S. bond yields are rising but still far back comparatively. They are still one third of AT&T’s payout. With the reward comes the risk of dividend cuts. Those headlines, however, would be devastating to the stock price.
The experts on Wall Street are also optimistic for the future of T stock. According to Yahoo Finance, of the 30 analysts who track it, 20 are on “hold.” This is a pool of upgrade headlines waiting to happen. Meanwhile, the average price target is 20% above current levels.
Technically, this latest correction brings the stock back into last December’s baseline. Although it’s not quite at the same level, it is close enough to serve as support zone.
The bulls will need a strong effort, but they have somewhat firm footing below them. Rising stock markets may give T stock the tailwind it needs. There will be sellers lurking near $24.50 per share, and it would be OK to fade into resistance. The rally can continue as long as the stock maintains progress with higher-low trends.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.