- 2 days ago
Category
🥇
SportsTranscript
00:00Joining me now, Kevin Maughan, President and Chief Investment Officer at Hennion and Walsh Asset Management.
00:06Kevin, great to have you back at the desk.
00:08Great to be back here at the New York Stock Exchange.
00:10Yeah, so we're talking stocks.
00:12U.S.-China trade tensions did have investors on edge for a bit, but stocks back in positive territory today.
00:19What's your take?
00:20How much of this market rally depends on the two sides striking a deal?
00:23Yeah, I still contend that China is the top of the fight card as it relates to global tariffs and trade.
00:30And the more back and forth that we hear, the more investors get concerned about what the long-term prospects are.
00:37Of course, we need their rare earth minerals and they need our chips.
00:40So that's at the heart of all this.
00:42But the market seems now to be looking past that.
00:44We had that initial pullback on Friday, and boy, did we have a relief rally on Monday.
00:49That just reminds me, and should remind investors as well, about the dangers of trying to time the market.
00:55Look, I've been doing this for over three decades.
00:57I don't know how to time the market effectively.
00:59It's an exercise in futility.
01:01So stay invested.
01:02Stay invested, consistent with your risk tolerance.
01:05Build in diversification where appropriate.
01:08But don't play this guessing game of in the market, out of the market, in the market, out of the market.
01:12You're likely to miss out on the most significant returns that the market has to offer.
01:16But for those investors looking to put some money to work, maybe they missed the initial huge run higher.
01:23Would you say that opportunities like last Friday were a good buying opportunity, or will there be better?
01:29You can't time the market, but would you be comfortable putting money to work right now with stocks very close to record highs?
01:35Yeah, I do believe we're in a buy-the-dip type of phase once again right now.
01:39Well, we've had 33 record closes thus far this year for the S&P 500, 57 such record closes last year.
01:46We have the market trading at elevated valuation.
01:48So most would think, how much higher could we go?
01:51But we got a tailwind back in September.
01:53That tailwind came from the Federal Reserve.
01:55And there was a stat put out by Goldman Sachs that looked at the last 40 years
01:59and found that the Federal Reserve cut interest rates eight times after pausing for six months or more, as they did in September.
02:07Now, in four of those times, Carolyn, the economy moved into recession.
02:10That's not our base case here.
02:12In the other four instances, however, when the economy continued to grow, even if at a slower pace,
02:17the market moved higher by an average of 8% over six months and 15% over the next 12 months.
02:23I think we're leaning more towards that, but you're going to have to be a lot more selective to find those growth opportunities this time around.
02:2915% from here?
02:31From here over the next 12 months.
02:33All right.
02:34So if you have to be selective, what should you be adding to your portfolio?
02:37What should you be taking out?
02:38Sure.
02:39I think you want to continue to follow the money, aerospace and defense spending and AI infrastructure spending.
02:45And I know we continue to talk about the AI revolution, but I'm more focused on the infrastructure buildouts
02:51and all the money that's being spent there on data centers, on cooling solutions, on power solutions.
02:57And some names that I think coincide with that, there's a name like IES Holdings.
03:02Most haven't heard of the company.
03:03They provide electrical connectivity to data centers.
03:07Their stock's up almost 97% year to date.
03:10How about a company like Comfort Systems, ticker symbol FIX?
03:13They're in the industrial sector.
03:15What the heck do they have to do with the AI revolution?
03:17But they supply cooling solutions to warehouses, distribution centers, and data centers.
03:23Their stock's up over 100%.
03:26And then finally, Caroline, two names that are reporting earnings this week, ASML, which reported earnings earlier today,
03:32and Taiwan Semiconductor, which reports tomorrow.
03:35I think those are other great ways to play the AI revolution without just going back and forth with NVIDIA,
03:40which, in my view at least, still sits at the hub of the AI ecosystem.
03:44I was going to say, notably missing from your list is NVIDIA.
03:48You can't count out NVIDIA.
03:49You still would be putting money to work in NVIDIA?
03:52Absolutely.
03:52Absolutely.
03:53And I think NVIDIA is playing the long game with respect to AI.
03:57They used to be just in chips.
03:59Now what we found in last quarter is that 88% of the revenues came not from chips, but from data center revenue.
04:05So they're diversifying in terms of their revenue base going forward.
04:08I think that's very smart.
04:10But there are other opportunities beyond NVIDIA and beyond chips.
04:14And those other names are just a couple as examples.
04:16So you're diversifying within the AI space.
04:19Correct.
04:19But what about diversification overall?
04:21Yes.
04:21Because there are other headwinds for investors to contend with.
04:25It's not just trade tensions.
04:27It's a government shutdown.
04:28Yep.
04:29It's a weakening macro picture.
04:31Yep.
04:31It's interest rate policy, which could be a tailwind unless the Fed doesn't do what the market actually wants it to do.
04:36So, I mean, there are plenty of other obstacles in the way.
04:40Climbing the wall of worry.
04:41And I think there will be more short-term bouts of volatility ahead during the fourth quarter.
04:45So investors who may want to get a little more defensive in this environment but don't want to exit the market completely.
04:51How about the utility sector, the top-performing sector year-to-date?
04:55Big, old, boring utility stocks.
04:57They hold up well in the face of volatility.
04:59They pay good dividends.
05:00But guess what, Caroline?
05:01Now they've become a backdoor play into the AI revolution.
05:04Those multi-utilities that supply natural gas, nuclear power, and more traditional sources of power appear to be good from an investment perspective as well and are good diversifiers.
05:15And then I think on the fixed income side of the equation, what about municipal bonds?
05:19Investment-grade municipal bonds that really haven't rallied back just yet due to all the excess supply that took place before the one big, beautiful build-back was passed.
05:27I think they come back.
05:28They're paying very attractive tax-equivalent yields right now.
05:32And it's another great diversification example if you want to look at fixed income.
05:35It's interesting, though, because you make the point that utility is one of the best-performing sectors.
05:40Some of your stock picks up 97%, 100% year-to-date.
05:43Some might say, am I too late?
05:45But you think that there's more room to run for those particular names or sectors from there.
05:50I do, and I'll lean into NVIDIA CEO Jensen Wong here, who has forecasted that there's going to be somewhere between $3 trillion to $4 trillion with a T of money spent on AI infrastructure by the end of this decade.
06:03Right now, we're around $600 billion.
06:05So if we get to $3 trillion to $4 trillion by the end of this decade, all of those infrastructure build-out names still stand to benefit and could move higher.
06:12But you make a very good point.
06:14They're trading at some pretty rich valuations right now.
06:17So try not just to pick one or two winners, try and pick multiple winners, and then also try and surround that with some more diversified names in other sectors, just in case too much money goes in there and there is a pullback.
06:29Okay.
06:30One thing we haven't talked about yet is earnings.
06:32Should we look at earnings as a positive catalyst as we really kind of kick things off, or should we look at it as potentially another headwind for the market?
06:41And we also haven't talked about banks.
06:42You didn't recommend any bank stocks.
06:44We've heard from all the big banks, so I want to get your takeaway from big banks' earnings as well.
06:48I'll start with banks.
06:49So I think banks are off to a good start this earnings season.
06:52The big money center banks.
06:53I looked at Bank of America, which reported very strong investment banking revenue.
06:57That's interesting to me.
06:58Net interest income at several of the banks appears to be in a comfortable range.
07:02That's a net positive for the economy.
07:04But where I really see the opportunity within banks isn't necessarily the big money center banks,
07:08but the smaller cap regional banks, which will continue to perform as short-term interest rates move lower,
07:15even if only gradually over the next two years, because now they become more attractive acquisition targets to those big money center banks.
07:22Earnings overall, I think it's forecast that we're going to grow about 8% year-over-year earnings growth rate.
07:26If that holds true, that's the ninth consecutive quarter of earnings growth.
07:30That's a really positive trend right now.
07:32And what I'm really encouraged by is a lot of these earnings are citing continued strength with the consumer.
07:38We have to remember during the first half of this year,
07:41AI infrastructure spending actually matched the contribution to GDP of consumer spending.
07:46That's not normally the case.
07:47Usually the consumer accounts for 70% of the economic growth in our country.
07:51Now it appears to be turning back to the consumer again in the second half this year,
07:55despite all the spending that still takes place in AI infrastructure,
07:58and that's good for corporate earnings, and that's good for the economy.
08:01So I'm really anxious to see if the economy continues to grow, as the Atlanta GDP forecast is suggesting,
08:08or does it start to pull back to what the Fed is suggesting by the end of the year?
08:13Remember, they're forecasting economic growth to slow to 1.6% this year.
08:17What do they know that we don't know?
08:19And we're learning even less with the government shutdown.
08:22That's right.
08:22We're not getting any new data reports.
08:24But I think that this earnings season should give us, at least in terms of guidance,
08:29some more insights into how the consumer is doing, and maybe some broader economic implications.
08:36If we start to see signs of concerns from some of these companies,
08:39or even continued signs of concerns from some of these companies,
08:42is that make or break for this rally?
08:44Do you change your forecast of 15% from here?
08:48Well, that's not my forecast.
08:49That's just what history has suggested might happen,
08:52and, of course, this time could be different.
08:54But my outlook going forward is still optimistic.
08:56But I'm also factoring that the Fed is going to cut interest rates two more times this year,
09:01that they're going to continue to cut interest rates over the next year and a half
09:04until we get back to their 3% neutral rate.
09:07My forecast is still based on the economy not moving into recession.
09:10My economy is still based on all of this spending taking place
09:14in aerospace and defense and AI infrastructure and AI revolution continuing.
09:18So, yes, I have a lot of contingencies with that forecast.
09:22But it does appear as though everything is lining up right now.
09:25And the concern for me as a portfolio manager is that others feel the same way.
09:29And there's a lot of complacency on Wall Street right now
09:32that the market's going to continue to grind higher,
09:34that this spending is going to continue to take place at these record levels,
09:38and it won't.
09:39It can't continue in perpetuity.
09:41So this might be an appropriate time for investors to sit with their financial advisors,
09:45look at their portfolios, take some gains, and reallocate to other areas of the market
09:50to build more diversification into their portfolios
09:53if, in fact, they're concerned about oncoming volatility.
09:57All right, we'll leave it there.
09:58Kevin, thank you so much for sharing your insights and your picks, too.
10:01Really appreciate it.
10:02That's Kevin Maughan, President and Chief Investment Officer
10:05at Henion and Walsh Asset Management.
10:15Thank you so much for sharing your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights and your insights
Recommended
2:11:45
|
Up next
1:47:48
42:48
0:41
0:28
4:49
2:07
0:55
8:20
8:41
1:08
1:14
Be the first to comment