The U.S. Treasury, tripling the debt buy back cap to $6 billion. Yet ten year yield still rose to 4.85%, as Wall Street had hoped for an even larger intervention. Meanwhile, a stronger than expected August jobs report and Brant topping $101 a barrel. Recalibrating Wall Street's expectations ahead of this week's inflation figures.
While higher yields are doing some of the Fed's inflation fighting work, capital does continue to flow into key secular growth sectors. Well, joining us this afternoon to weigh in on all of these topics is Kevin Mahn, president and CIO at Hennion and Walsh. Great to have you here. Thank you so much.
For having me.
Well, there's a lot going on. So first and foremost, let's talk about that announcement from the U.S. Treasury and the market reaction. We saw yields for the ten year 20 or 30 year spike. So what does that tell you?
Yeah you got the ten year yield around 42 right now, the highest it's been since November of 2023. Obviously that gives the administration pause as they don't want to see yields or interest rates going higher. They want to in fact, see them going lower. So Treasury Secretary Benson stepped in. He's buying back about 6 billion of the intermediate term Treasury securities plans for another 4 billion.
So a total of 10 billion. But let's just keep this in perspective. There's about 37 trillion of U.S. Treasury securities outstanding. So it's a gesture, but a very small gesture and really shouldn't have a material impact on the market.
Yeah. And speaking of which, while we continue to monitor what's happening in US Treasury yields, as well as global yields, for that matter, we have to keep in mind that we're counting down to the next fed meeting, which is next week. And on the heels of that stronger than expected jobs report, we get producer prices tomorrow morning.
And on Friday that long awaited CPI figure. But given the fact that oil prices are creeping higher yet once again, what does all of this mean?
Yeah. To me, it's not a question of what the fed should do, but rather what the fed will likely do. And I think they may likely raise interest rates by 25 basis points next week. Remembering that they don't meet again till the end of October, right before the midterm elections, and people would cast some aspersions if in fact, they took action right before those elections.
So let's look back what they're going to do next week. My question to Chair Walsh would be if, in fact, we raise interest rates by 25 basis points because of their concerns about the Strait of Hormuz being closed, higher oil prices, lingering inflation, what is the 25 basis point rate hike going to do to open up the Strait of Hormuz or to lower oil prices?
So I think whatever they potentially do next week, they'll likely take back in early 2027. So this will be a short term Band-Aid, but not a long term impact.
Yeah, there have been many analogies in terms of what interest rates can actually do, both from the demand as well as supply side. And I think perspective is key because as you mentioned, we do have event risk coming down the pike, whether we're talking about midterms or other big events that we're paying attention to.
So when we take a look at where we are in the economy, tell us what this means for sectors.
Sure, if you want to look past what's going to happen between now and the midterm elections, because I believe there's going to be more short term bouts of volatility ahead, and investors may become unnerved with those bouts of volatility because of the strong secular bull market that we've been experiencing.
But that doesn't mean they should necessarily rush to the sidelines or abandon their longer term financial or investment plans. Stick to the themes that have been working in the market this year, and that's following my follow the money overall adage. Where do you follow the money into who's receiving all the billions of dollars right now in our economy, it's AI, infrastructure companies, power companies, water solutions companies, aerospace and defense, and of course, health care.
If you look at those areas, you're going to continue to find growth opportunities. And perhaps each time we see a bout of volatility, those names will be trading at a more attractive price.
Yeah. And I do want to expand on something you just mentioned there. And that is artificial intelligence. So earnings season may be winding down, but on a regular basis we continue to hear about capital raises, debt raises, in addition to some of these partnerships and JVs that are taking place. But when we look at the performance of Mag seven versus what you refer to, the R seven, tell us what's happening.
It's a stark difference, because if you look at those mag seven names, the Mega Cap hyperscalers, what you'll find is that through September the 4th, the performance equated to those mag seven names. It's around 5%. However, if you look at the performance and I'm not patting myself on the back here, but of my AR seven stock basket, which invests across the entire AI ecosystem, has two of the mag seven names in Nvidia and Alphabet, but then goes beyond into Taiwan Semiconductor, Micron Digital Realty, Vertu, and American Electric Power.
Guess what those seven names equal weighted have done through September the 4th go up about 60%, 60% versus 5%. I'm not saying that performance is going to continue, but it should give investors reasons to look at diversifying across the whole ecosystem as opposed to just. Narrowing and concentrating on those mega cap names.
And other areas of the market that you're paying attention to include biotech, M&A as well as capital flows. So tell us the why behind this.
Yes. So I think there are multiple headwinds facing big cap pharma right now, which creates the tailwinds for small cap biotech because large cap pharma is going to have to start being more acquisitive because Congress is continuing to put pressure on them to lower drug prices. That compresses their profit margin.
And we also know about the patent cliff, how many large revenue producing drugs are scheduled to come off patent and be subject to generic pricing? So where's big cap Pharma going to turn? They don't have their own pipeline of drugs waiting, so they're going to have to be acquisitive. And thus far this year through the first half of 2026, small cap M&A has increased by 90% over last year.
We think that continues for the balance of the year.
Yeah. And finally, before I let you go, we've covered many areas of the market. And when we look at energy, we know that within the S&P 500, energy has outperformed all these sectors. So what is your outlook as we move forward?
Yeah. So energy is the number one performing gig sector thus far followed by technology. And then you throw materials and industrials. Industrials has the aerospace and defense and also the infrastructure play of AI. But if you look going forward, my biggest concern is that the conflict between the Iran and the US escalates further and oil prices remain above $100 per barrel for too long.
But if there is any announcement of a resolution to the conflict between the US and Iran or the Strait of Hormuz starts to operate more regularly, oil prices can come down as quickly as they wind up. So be very careful playing in that energy sector right now. Don't over concentrate.
Well. A lot of sage words there. So appreciate your time today. Thank you so much for joining us. And thank you so much for sharing your perspective. My pleasure. Thank you.
