Looking ahead to the fourth quarter, Hennion & Walsh chief investment officer Kevin Mahn says two factors are driving his expectations for a fruitful final quarter.
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00:00 Speaker A
as we head into the final trading day of the third quarter, some of the top performing stocks include new entrance to the S&P 500 like App11, Media stocks, Warner Brothers Discovery and Paramount SkyDance and tech plays like Western Digital, Seagate and Intel. Names that go far beyond the magnificent 7. Still with me for a deeper look at how stocks performed in the third quarter and what investors should now do. Kevin Mann, Heny and Walsh CIO is still with us. So, Kevin, um, we did see sort of some broadening in the third quarter.
00:30 Speaker A
But most of the gains. I mean, and yes, on a percentage basis, you can look at the Apple 1s of the world. But because of their size, it’s still the likes of Nvidia that are pulling things higher. Is that still the way to to go?
00:41 Kevin Mahn
And who would have thought we’d been at this point, right? Year to date, the stock market’s up over 14%. Remember, through the first 73 trading days of the year, the market was down 10.2%. But I have two reasons to still be optimistic over the balance of the year. One of them, believe it or not relates to the Federal Reserve. According to data from Goldman Sachs, over the last 40 years, the Federal Reserve when they have cut interest rates by 25 basis points following a pause of six months or more, as we just had, in half of those eight
01:10 Kevin Mahn
instances, the economy moved into recession. That’s not our base case. In the other half of those cases, when the economy continue to grow, even if it was at a smaller pace or a slower pace, the stock market grew by 8% over the next six months and 15% over the next 12 months. That’s what I believe is going to be the case this time around.
01:21 Speaker A
Okay. So reason number one to be optimistic, the Fed cuts but and there is no recession. Okay. Thing two.
01:26 Kevin Mahn
Thing two, AI infrastructure spending. We continue to see billions upon billions of dollars of announcements in AI infrastructure investments. Nvidia, their CEO Jensen Wong forecast that by the end of this decade, we could see three to four trillion with a T in AI infrastructure investments. As I understand it right now, we’re around 600 billion. So if that is the case, where can we find pockets of growth opportunities at least for the balance of 2025?
01:53 Kevin Mahn
Look to the AI infrastructure spending. That’s where all the money is heading and that’s where you’re likely to find the returns as well.
02:00 Speaker A
What about the concerns that sort of arose in the in the last few weeks or re- reignited because it’s they’re not new about where that money is coming from to spend, right? Is it being borrowed in some cases? Is it Nvidia investing in a company and then that company spending the money on Nvidia, as we’ve seen some concerns about that. And then the other side of that is, okay, there’s all of this push to spend, where’s the return on all of that investment?
02:40 Kevin Mahn
So it’s a great question. and I continue to use the example that we’re in batting practice of a doubleheader as it relates to the AI revolution. Batting fractures is the AI infrastructure buildout. The games will ultimately involve the implementation of these AI algorithms that will transform the economy and society and likely lead to returns on investment. But that’s years down the road. So where are the opportunities right now?
03:04 Kevin Mahn
Look in the industrial sector. I know it doesn’t make sense that you’d look for an AI play in the industrial sector, one of the top three performing sectors here to date. But you look for companies such as IES Holdings. They do the electrical connectivity for data centers or a company like Comfort Systems who supplies the cooling solutions to data centers or MCo, which was just recently added to the S&P 500. They do the site design and construction of the data centers. All part of the AI revolution, but not in the
03:22 Kevin Mahn
technology sector and they’re receiving returns on their investment right now because they’re flush with money that’s coming in from large cap tech to build out these capabilities.
