Hennion & Walsh President and CIO Kevin Mahn appears on Yahoo Finance Live and comments on the Federal Reserve’s interest rate strategy for the second half of 2024, as well as Nvidia’s (NVDA) earnings and the impact of AI trends on the market. To do.
“Starting to cut interest rates before inflation returns to 2% means we are more concerned about the slowdown leading to a recession than about inflation staying above 2%.” says Maan. “Now it’s over 3%, and all of a sudden it’s getting a lot of attention. But if it’s between 2% and 3%, I think the Fed is happy with that.”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by luke carberry morgan.
video transcript
Josh Lipton: For more information on market activity, we are joined by Kevin Mahn, President and Chief Investment Officer of Hennion & Walsh. Kevin, it’s always nice to see you.
– Good to have you back, Josh. thank you.
Josh Lipton: So let’s start with Nvidia. Big income after the bell, right? Kevin, as a strategist, what do you think about this report, its effectiveness, and its impact on the technology sector and broader market?
Kevin Mann: Well, regardless of what Nvidia reports soon, I’m here to bring you the latest news. And the AI boom is not slowing down yet. I would argue that this is just the beginning and indeed the year ahead will provide investment opportunities.
But I think Nvidia, the poster child for the AI boom, was a little ahead of the curve. And their current valuation doesn’t justify where it should be traded. That being said, I think they will once again impress on the bottom line. I don’t know if they outweigh the benefits. But any hint of negative forward-looking guidance gives the Street an excuse to take some of the profits and reallocate those assets to other areas that may not be as overvalued.
Julie Hyman: How important is Nvidia and the AI boom in a broader sense to the market rally here? I mean, I talked to a strategist early on in the program, and he said he’s starting to see things finally start to open up a little bit. I said there is. And perhaps that will be at least part of the story for the rest of the year.
Kevin Mann: The Magnificent Seven certainly contributed to 60% of the S&P 500’s return last year. But if we look to 2024, we see that other investment opportunities exist once this rate hike cycle reaches its end. The question then becomes, when will the Fed start cutting interest rates?
I believe the earliest the Fed will consider cutting rates is July. That’s because the Fed fears a repeat of what happened in the mid-1970s and early 1980s, when it first started cutting interest rates. Toward achieving the 2% inflation target. what happened? Inflation is back. reached double-digit levels. Paul Volcker had to step in and raise short-term interest rates to 20% of the federal funds target rate, creating a recession.
The Fed is currently trying to balance its actions. Investors are trying to understand that. But once interest rates begin to cut later this year, we could see the start of a broader rally in both stocks and bonds.
Josh Lipton: I ask because some of the recent economic data we’ve had has been higher-than-expected CPI, PPI, and weak retail sales. I think some people probably felt scared when they heard that. And I started hearing that some people were a little worried about stagflation.
Kevin Mann: right.
Josh Lipton: How concerned are you about the US economy in 2024? Or are you in the soft landing camp?
Kevin Mann: My biggest concern is that the Fed stays high for too long. Now, what is too expensive and what is too long? Well, let’s see where they are now. The federal funds target rate is 5% and 1/4%, the highest level in 22 years. Even with three 75 basis point rate cuts this year, it is still at its highest level. It’s been 17 years. Therefore, although interest rates may fall, they will remain high.
Now let’s look at their forecast for economic growth of 1.4% this year and staying below 2% all the way through the end of 2026. If they’re going to start cutting rates before inflation gets back to 2%, we’ll see. They are more concerned about the economic slowdown entering a recession than they are about inflation staying above 2%. Now all of a sudden it’s over 3% and it’s getting their attention. But if it’s between 2% and 3%, I think the Fed is happy there.
Julie Hyman: So what to do with all this? where are you putting your money now?
Kevin Mann: Historically, there are certain sectors that have performed relatively well during economic downturns. These include daily necessities and daily necessities, of course. There are names for industry, especially aerospace and defense, healthcare, and especially biotechnology. M&A activity is becoming more active there.
And finally, information technology. And I’m not talking about Mag Seven, I’m not talking about Nvidia, I’m talking about other technology names that probably haven’t really joined the rally yet. Looking at companies with strong balance sheets, dividend-paying companies are more quality-oriented, which could help them weather this economic downturn.
Josh Lipton: What about bonds, Kevin, are there any opportunities there?
Kevin Mann: Absolutely.
Josh Lipton: Can you find value?
Kevin Mann: Yeah. I think in the fixed income world we also need to maintain quality as defined by investment grade. Municipal bonds, corporate bonds, government bonds, and extended duration are favored, especially due to demand imbalances. And another area that is rarely talked about in the fixed income world is preferred stocks. Because it has stocks in its name. Preferred stocks are currently trading at very deep double-digit discounts and offer high levels of recurring income, making them a great area for investors to consider for their recovery.
Julie Hyman: Okay. Thank you, Kevin. I’m glad to meet you. Thank you for visiting us.
Josh Lipton: Thanks, Kevin.
