Transcript:
Here is the transcript with only the time codes removed. I kept the speaker names, colons, wording, punctuation, and paragraph breaks unchanged.
Caroline Woods:
Joining me now is Kevin Mahn, president and chief investment officer at Ian Walsh Asset Management. Kevin, always good to have you. Thanks for being back at the desk.
Kevin Mahn:
It’s great to be back. Thanks for having.
Caroline Woods:
I want to get a check in on your bullishness because we have oil near $100 a barrel. We have rates higher. We have the market pricing and a fed hike next week. Yeah the S&P 500 a bit lower right now but sitting very close to all time highs. Are you still bullish.
Kevin Mahn:
Am I still bullish. Yes. Am I still optimistic long term. Yes. Do I think there will be more short term bouts of volatility over the near to medium term? Yes. And I think what investors have to need to keep in perspective is that the conflict between the U.S. and Iran continues to escalate. Not going the other direction. The Strait of Hormuz is still not open.
Kevin Mahn:
We have oil back above $100 a barrel. We’re having two very important inflation reports come out this week, which will, in all likelihood, remind us that inflation stays above 3%. The Fed’s target is 2%. So it’s going to take them quite some time to get back to that 2% level. Oh, and let’s not forget about the midterm elections in November.
Kevin Mahn:
All of that is going to create more volatility. But that doesn’t mean investors should flee to the sidelines and try to time the market, because I still think there are growth opportunities. And each time there’s a pullback that creates attractive entry opportunities in certain areas of the market.
Caroline Woods:
So just clarify short term bouts of volatility means you think we’re going to see some weakness here.
Kevin Mahn:
We could definitely see some weakness what we saw on Tuesday. What we’re seeing today is likely what we’re going to see for the balance. I’d say if the next month and a half to two months, these days when the market is down 300 to 500 points, a little bit of bounce back because investors start nibbling at that dip, but then more pullback as the tensions escalate.
Kevin Mahn:
Again, oil prices remain high. The investors are confused about what the fed is going to do or not do. Then we’re going to learn that there’s going to be a balance of power in Washington, which is actually a good thing, but that always creates volatility. So I think there’s going to be more of these intermittent pullbacks but not a serious correction.
Caroline Woods:
But with the S&P 500 about 2% away from all time highs, is it properly pricing in all of these risks that it’s really up against.
Kevin Mahn:
No. But it’s also not properly pricing in the earnings growth that we’ve seen thus far this year and the earnings growth that we’re expecting for the bounce of this year and next year. So I think that earnings growth is what’s going to save this market. And these pullbacks from going into a more serious correction.
Caroline Woods:
You always say you already said it. It’s time in the market not timing the market. So it’s still safe to put cash to work at these levels.
Kevin Mahn:
I believe so. And I’ll go back to the statistics. Once again. We did this study. Hartford did a study as well. We looked at the last 20 years worth of data, and what we found was that if an investor missed out on just the ten best days in the market over those 20 years, the returns were cut in half.
Kevin Mahn:
If they missed out in the best 30 days, the returns were reduced by 84%. None of us here have a crystal ball. So you need to stay invested, but diversified in accordance with what your risk tolerance is, making adjustments along the way as appropriate.
Caroline Woods:
Can you make the case that it’s time to keep some dry powder on hand though?
Kevin Mahn:
It really depends on what your goals are and what your risk tolerance is. If, in fact, you want to keep an emergency fund, you should always have about six months worth your earnings sitting in cash to cover unique scenarios that you’re.
Caroline Woods:
Talking about, cash to potentially buy at lower levels.
Kevin Mahn:
But then again, that’s trying to time the market. And I don’t know when those lower levels are going to come. But if there is a big pullback, historically the best days happen after the worst days. So if you do have money sitting in cash, maybe that’s a good time to deploy it.
Caroline Woods:
What would make you tell investors don’t put fresh money to work here?
Kevin Mahn:
I think you’d really have to start thinking hard if oil gets above $120 a barrel, if ten year yield goes above 5%. Now all of a sudden the bond market is telling us that things are about to get a lot worse, and oil may stay at those levels for a much longer period of time. If oil stays above $120 for an extended period of time, then the U.S. consumer has the less money to invest because they have to spend more on gasoline as they spend less.
Kevin Mahn:
Given that the consumer accounts for 70% of our economic growth, the economy slows further. Then what’s the fed to do? They can’t jump in and cut interest rates if inflation is also still high as well. So they’re stuck in the middle. That would be the biggest concern to me.
Caroline Woods:
There is a 62% chance right now, according to the CME fed watch tool, that the fed will hike next week.
Kevin Mahn:
Yes.
Caroline Woods:
What could that do to this market?
Kevin Mahn:
Well, so at 38% chance they do nothing. But I think the fed should do nothing. But I do think the fed may now think they have to do something. But I would also argue that maybe the bond market has done their work for them already. You look at the ten year yield right now 42. That’s the highest it’s been since November of 2023.
Kevin Mahn:
And I would also ask chair, if in fact, they’re considering a rate hike of 25 basis points now because of their concerns with high oil prices. What will that rate hike do to open the Strait of Hormuz or to bring down oil prices? And if I’m also reading the bond market correctly, looking out to next year, they think that interest rates are going to come down next year between 25 to 50 basis points.
Kevin Mahn:
So perhaps this inflation is, I hate to say it but transitory. And they believe that this conflict will come to an end. And just as quickly as oil prices ran up, they could start to come back down.
Caroline Woods:
Can the stock market move higher if the fed hikes rates? If the ten year yield is near 5%?
Kevin Mahn:
Yes and yes. I don’t think the market will be caught off guard if the fed raises by 25 basis points. Now, if they follow through and raise again in October and December. That would certainly catch me off guard. If the ten year rises above 5% and now all of a sudden the 30 year is creeping up near five and three quarters 6%, that would catch me off guard.
Kevin Mahn:
But that’s not my base case right now. So the markets can absorb a 25 basis point rate hike. The markets are already absorbing where yields are right now. And if you just continue to follow the money Caroline you’ll continue to find those growth opportunities.
Caroline Woods:
Would a rate hike change your investment strategy at all though?
Kevin Mahn:
It would not in the slightest. Now if in fact now all of a sudden share Warsh comes out next week and says we’re raising interest rates by 25 basis points, and I’m going to give you some forward looking guidance. I would first fall off my chair and then I would listen to what that guidance is. If it sounds much more hawkish, then that might make me change some of the allocations going forward.
Kevin Mahn:
But he’s not going to. That’s not his M.O..
Caroline Woods:
All right. So talk to us about what we should be doing right now other than putting money to work. Where do we want to put it? Where are the best opportunities?
Kevin Mahn:
I still think it’s following the money I infrastructure. I just saw a stat the other day that we’ve already spent $1 trillion this year. Companies on I infrastructure investments $1 trillion. Johnson was forecasting 3 to $4 trillion by the end of this decade. Boy, we well ahead of that already. Well, that slow down perhaps, but it’s going to continue.
Kevin Mahn:
Power water solutions aerospace and defense. I just saw that the US Navy put in a contract for Raytheon or RTX for their Tomahawk missiles, to replenish what they’ve used already over in Iran. Money continues to be spent on defense and health care. I always talk about health care with you, but that M&A activity that’s taking place in biotech is only accelerating.
Caroline Woods:
Last time Nvidia was your number one stock for new money. Is it still.
Kevin Mahn:
It will always be one of my top stocks for new money, because they sit at the hub of the ecosystem and everything they touch turns to gold.
Caroline Woods:
What’s one I stock that maybe it’s gotten too expensive for you?
Kevin Mahn:
I wouldn’t say micron, that’s for sure. I know a lot of people think that micron has run up too high too fast. The stock’s up over 600% over the last year. Look at their Ford PE still trading at roughly six times forward earnings. But then you look at a company like Palantir I really like what Palantir does.
Kevin Mahn:
I think they’re in the right space. But it’s hard to chase after stock that’s trading at those types of multiples right here. Like the stock don’t like the price it’s trading at. But if it comes in a little bit more realistic than I like it even more.
Caroline Woods:
Give us some other names that you would buy today. Yes.
Kevin Mahn:
I’ll give you my er seven names if you don’t mind. So we have, Nvidia in there. Also have alphabet. I like micron. I like Taiwan Semiconductor because their importance only continues to grow 70% market share as it relates to what they do as a dedicated chip foundry company like Digital Realty. Perhaps that’s not my favorite in this space, but there are other reads as well that continue to build out data centers despite the Nimby movement, which I’m really interested to see if that continues after the midterm elections.
Kevin Mahn:
American Electric Power I know that’s a lot of, strategist favorite utility name right now, but it’s been mine for a while now. You can go back and look at previous shows I really like. What they do is supplying electricity to 5 million customers in 11 states, including the State of Virginia data center, Capital World, and they pay good dividend and for the cooling side of it.
Kevin Mahn:
So those are the names that I like and continue to like. And guess what? Through September the 4th, those names, those seven names equally weighted are up roughly 60% year to date.
Caroline Woods:
And you’d still get into all of them today.
Kevin Mahn:
On an equal weighted basis. Yes.
Caroline Woods:
So what about, you know, earnings season obviously has happened since we last spoke. Still technically going on. Are there any names that you feel differently about now that they’ve reported or maybe you’ve seen a run up or the opposite?
Kevin Mahn:
If anything, it reaffirmed my conviction in the state and the health of the air revolution. And certainly as it relates to Nvidia, I know we’re always going back to Nvidia, but look at what they’re doing to diversify their revenue base. Yes, the number one chip seller in the world. Yes. They’re now building their next advanced generation chip with the Reuben chip, which needs high bandwidth memory, which comes from Mike Brown.
Kevin Mahn:
But don’t let me digress, but look what they’re doing in their data center business. It’s now accounting for over 80% of their revenue. So they’re not as reliant upon the chip sales anymore, which have a political connotation in terms of what can be sold to China and not the data center business continues to grow for them.
Caroline Woods:
We’ve seen some big moves in software names after earnings as well. If you had to put new money into a software name post earnings, which one would it be? That’s not Microsoft.
Kevin Mahn:
I still like alphabet, right? If I think the.
Caroline Woods:
Alphabet doesn’t count as.
Kevin Mahn:
I.
Caroline Woods:
Cannot come on. They provide traditional software that’s not a hyper scalar.
Kevin Mahn:
I’m going to wait and see what Apple does under the direction of their new CEO.
Caroline Woods:
Okay, so Apple has software as a service business. I guess that it counts, you know, not a sales force, not a service. Now.
Kevin Mahn:
No. And no. I do like in terms of deployment, the cybersecurity of the I trade, there’s a little bit of a hardware element to that in software. CrowdStrike, Fortinet. I think what they’re doing to use AI to thwart eye attacks is incredibly important for our entire economy. But the stocks are still trading undervalued right now. And I think there’s a catch up week.
Caroline Woods:
We have the Apple event going on right now. Actually. You said you’re waiting and seeing on Apple. What do you need to hear? What would make you go in.
Kevin Mahn:
On how serious they are about AI? Tim Cook didn’t appear to be, and I know I’ve always said this for your Apple is really first to market, but they’re often that’s the market. So they take their time to analyze, let others succeed, others fail, learn from it, acquire and then deploy. But how much longer are they going to wait?
Kevin Mahn:
Are they going to buy or are they going to build, or are they going to acquire? What’s the mindset of this new CEO? I know he’s got a background in hardware engineering. He understands the science, he understands the technology. But does he understand how to grow the business?
Caroline Woods:
Last time you were on, you said if oil gets near $100 a barrel, you would start thinking about utilities. This is a list of that. Brant Brant hit $100. Now’s the time. Where do we go?
Kevin Mahn:
Yeah, I think utilities make sense for a number of reasons. High oil prices, high natural gas prices, high gas prices, more volatility ahead. It in my opinion, like we’re seeing thus far this week. And utilities historically have held up well in the face of volatility. They generally pay good dividends to combat these higher on yields right now. And they’ve also become a backdoor plan to the AI revolution.
Kevin Mahn:
So everything that you just mentioned and I just mentioned utilities check all the boxes. And they’re not trading as rich as they were now as they were last year. It’s actually one of the underperformers.
Caroline Woods:
Yeah. As a sector it’s basically flat.
Kevin Mahn:
Rate which everyone here’s the question why is it off so much. Well you have to look back. Why was it up so much last year. So now it’s trading at a much more attractive level.
Caroline Woods:
What’s the best way to play that?
Kevin Mahn:
I think you got to build a diversified pool of utilities, as I always do. You can invest in the ETF so you or you can build a portfolio of names like we have with American Electric Power, Duke Energy, NextEra energy. Look for the nuclear component as well. All those utilities that own nuclear power plants are going to be key to their revolution.
Caroline Woods:
So outside of utilities, health care tech, what other opportunities and defense you mentioned, what other opportunities are you seeing right now? What are their names?
Kevin Mahn:
I still like bonds. I mean, yeah, the dare I talk about bonds? I mean, if you look at what’s taking place with the rising yields, there’s an inverse relationship historically with yields and prices. So as yields have spike, prices have come down. And if you believe as I do that yields are eventually going to come back. Well now all of a sudden these prices here are trading at very attractive levels.
Kevin Mahn:
So you might get some good total return coming out of that plus the consistent coupon stream that gives you income.
Caroline Woods:
Okay. You know a day like today, you know we’re seeing red arrows but the S&P is only down 4/10 of a percent. It doesn’t feel scary. But if you do if we do see some of these short term bouts of volatility it might seem more serious. How do we separate. Oh this is just a healthy reset versus oh shoot this could be the beginning of something bigger.
Kevin Mahn:
I would say the point in time when you see 2 to 3 consecutive days of significant pullbacks of one and a half to 2% each, that means you’re not finding money coming off the sidelines to buy those dips. Then we could be in for a much more serious correction. Not a long term one, but a much more serious correction.
Kevin Mahn:
But I still think each time you see the market pullback 1 to 1.5%, even with the Nasdaq, the technology laden Nasdaq Composite Index, when that comes back in by 2%, the bottom feeders charge it.
Caroline Woods:
Because as they.
Kevin Mahn:
Us the longer term potential. Without a doubt.
Caroline Woods:
If you could only put money in one area today, what would it be?
Kevin Mahn:
I still like aerospace and defense, but it needs to be a blend of the space and the defense. A company like move, ticker symbol Mogu. They really diversified between space, space propulsion, space vehicles and the defense side of their portfolio. Raytheon, which has Collins Aerospace, Pratt and Whitney with the engines for the aircrafts and of course Raytheon’s for the Tomahawk missiles.
Kevin Mahn:
I think that’s a good way to play all the money that’s going to be thrown at that area over the upcoming years. So it’s not just a play for 2026, it’s a play for the next decade.
Caroline Woods:
U.S. or international. We’re not even at this or that yet.
Kevin Mahn:
But I still like over waiting U.S.. But, I have a quote, the International Development International emerging in my portfolio.
Caroline Woods:
And what about small caps? Because last time you were on, I checked, you put small caps over large caps, but it was a tough decision. If we see a rate hike with given how far the Russells run. Yeah. Would that still be the case?
Kevin Mahn:
Small caps are still significantly outperforming large caps year to date, but certain small caps are more susceptible to rate hikes than others. Regional banks, for one. But these biotechs still remain attractive, and the large cap pharmaceuticals don’t need to access the credit markets at higher rates to acquire those smaller cap biotech names. So it depends on where you are in small cap.
Kevin Mahn:
But I don’t know if large cap is going to make back where or how much they’re lagging. Small cap even if the fed does raise interest rates once okay.
Caroline Woods:
All right. I think this is a good time to pivot to our to officially pivot to our rapid fire game of this or that. You’ve played many times. Yes. Quick questions, quick answers. No hedging Kevin.
Kevin Mahn:
To go up the game. This is a fun game. It’s a.
Caroline Woods:
Game.
Kevin Mahn:
What do I win?
Caroline Woods:
Fed rate hike rally killer or healthy reset.
Kevin Mahn:
Neither I think the market’s going to take that fed rate hike. And we’ll see almost no significant movement up or down in the markets.
Caroline Woods:
If we do buy the dips or brace for more downside.
Kevin Mahn:
By the.
Caroline Woods:
Rest of 2026 rally continues or reality check.
Kevin Mahn:
Reality check until after the midterms. And then we’ll see a nice, strong Santa Clause rally.
Caroline Woods:
So S&P 8000 still on tracker off the table.
Kevin Mahn:
It’s still possible.
Caroline Woods:
Oil at 100 buying opportunity or warning sign.
Kevin Mahn:
For oil I’d say it’s a warning sign because just as quick as it went up it could come back down.
Caroline Woods:
Foldable iPhone Apple Catalyst or not event Apple Catalyst earnings winner you’d bet on Signet Jewelers or Jersey Mike’s jersey.
Kevin Mahn:
Mike’s I’m a Jersey.
Caroline Woods:
Boy consumer stock. You have the highest conviction and right now.
Kevin Mahn:
Dick’s Sporting Goods.
Caroline Woods:
Nvidia buy here or wait for a pullback.
Kevin Mahn:
Always Biden.
Caroline Woods:
Video IBM Opportunity or trap.
Kevin Mahn:
Opportunity.
Caroline Woods:
Space X attractive yet or still too expensive?
Kevin Mahn:
Still too expensive for me.
Caroline Woods:
Best place to hide if volatility spikes. Utility sector one stock you buy today with no hesitation. That’s not Nvidia or Micron.
Kevin Mahn:
American Electric power in the utility.
Caroline Woods:
Sector. One stock you’d sell today or avoid with no hesitation. Tesla best stock to own through year end. That’s not Microsoft. That’s not engineer micron.
Kevin Mahn:
I’ll say Taiwan Semiconductor.
Caroline Woods:
Finish this sentence. If the fed hikes. The biggest mistake investors can make is.
Kevin Mahn:
Becoming fearful, abandoning their longer term investment plans and going to the sidelines and try to time the market.
Caroline Woods:
Kevin Mahon, I always appreciate you joining us. Thanks so much. That’s Kevin Mahn of Hennigan and Walsh Asset Management.
