Kevin Mahn, Hennion & Walsh President and CIO, joins Yahoo Finance Live to discuss the outlook for volatility in markets and portfolio opportunities investors should look into this year.

Video Transcript

JULIE HYMAN: Let's bring in Kevin Mahn. He is Hennion & Walsh President and CIO. Kevin, it's always good to see you here. You know, as we are looking at stocks that even with this dip in futures are still close to record highs, the talk of valuations being high has not really gone away, but it has receded a little bit in the face of what has been this very strong earnings season. So, how are you thinking about the valuation question right now?

KEVIN MAHN: Sure, and Jules, as the saying goes, "April showers brings May flowers," and the showers this time around were positive economic in the earnings report, in addition to an increased rate of vaccinations. As I understand that two in every five adult Americans are now vaccinated. The flowers in this case are investment opportunities as the S&P moved another 5% higher, and continued to reach all time highs during the month of April, but that has led to excessive valuations as the PE in the S&P 500 is now above 30.

That's relative to a 10-year average PE of just 18.5 So, all that means, Julie, is that finding attractive growth opportunities in the months ahead are going to be a little bit more challenging, but we do think there are certain tailwinds in certain sectors that investors should consider.

BRIAN SOZZI: Kevin, it sounds like you're looking for a potential May hurricane in markets, maybe a correction.

KEVIN MAHN: [CHUCKLES] I do think, Brian, there is the potential for short-term bouts of volatility due to those excessive valuations and all of the uncertainty that currently stands with respect to the infrastructure spending bill, ultimately, how it's going to be funded, and certain taxation policies. But beyond those short-term bouts of volatility, there is continued reasons for optimism, whether it's consumer confidence, whether it's the strength in earnings, recognizing that thus far we have an 86% beat rate of the companies that have reported. If that holds, Brian, that will mark the highest beat rate since [INAUDIBLE] began tracking that data back in 2008. So, there are reasons for optimism, but we would recommend that investors also consider adding diversification to their portfolios to help withstand those short-term bouts of volatility.

JULIE HYMAN: We're hearing a lot of diversification talk these days. What does diversification mean to you? Where should people be diversified?

KEVIN MAHN: I think it's a question of what the investors' ultimate goals are and what their tolerance for risk is. Clearly, with markets continuing to reach all time high, investors are ratcheting up their risk tolerance level. That shouldn't be the case. Your risk tolerance shouldn't change just based upon the direction of the markets or the outlook for economic growth ahead.

With that said, you can certainly blend together certain sectors of the stock market and certain fixed income asset classes, and even alternative investment classes, to help limit your downside protection and also provide opportunities for upside growth ahead.

BRIAN SOZZI: Kevin, I briefly lost my train of thought. I was going to ask you because they're saying that a Baby Yoda is ringing the opening bell today. Always very interesting stuff. You never know what's going to pop up--

KEVIN MAHN: Very big distraction, I understand.

BRIAN SOZZI: Yeah, at the New York Stock Exchange. But just staying on what you like. What sectors should investors gravitate towards?

KEVIN MAHN: Yeah, one of the areas that we're particularly keen on right now are the areas that are the expected benefactors of the infrastructure spending bill. And I recognize that Republicans and Democrats right now are miles apart, pun intended, with respect to their negotiations on infrastructure spending, on terms of the total amount, the scope of the projects involved, and how it's going to be funded. But we do think there will be some common ground related to traditional infrastructure spending projects, and that would benefit sectors such as, industrials, materials, energy, telecommunications services. And if, in fact, the funding for that bill involves some form of an increase in taxes, well, the demand for tax free income, and municipal bonds by extensions, should increase as well.

So, those are some areas of the market that we like right now, in addition to, and I always talk about this with you, Brian and Julie, each time I'm on the show, but biotech. Once we do move beyond COVID 19, unfortunately, there will be other rare and chronic diseases that we'll still need innovative health care solutions for. And generally, those solutions come from the smaller cap biotech companies. And we think that's an area that still presents upside growth opportunities.

JULIE HYMAN: All right, we're going to pause here for the opening bell because (LAUGHING) there is Baby Yoda--

KEVIN MAHN: How can I compete with Yoda?

JULIE HYMAN: --at the New York Stock Exchange. Disney really milking this here. You know, I guess Baby Yoda doesn't have to wear a mask.

[CHUCKLING]

Because this has become this impromptu holiday in recent years, "May The 4th Be With You," as you see the slogan on the screen there says. We know the holiday, in these parts, as Myles Udland's birthday, although as he pointed out, May the 4th wasn't a thing when he was a kid. That just became something that is more recent.

Kevin, since we got you here, since we got Baby Yoda there. Why don't we ask you about Disney. Let's-- let's go off the-- let's go off the track a little bit here. How do you think about a stock like that with all of its sort of powerful media properties? As you know, it's sort of remarkable here that a company with that many properties can come up with something like Baby Yoda at this point in its life cycle.

KEVIN MAHN: Yeah, and again, I can't compete with Baby Yoda. But what I will say is that as America continues to reopen, as the global economy continues to re-open, Disney stands to be one of the potential benefactors of that reopening. We saw from the Conference Board that consumer confidence increased for the fourth straight month, and in fact, hit a 14-month high recently. That speaks to consumers feeling more comfortable going out, traveling, and spending again.

And obviously, the Disney theme parks and other Disney locations will stand to be benefactors of that. I recognize that's just one component of their business, but it's a component of their business that was certainly lagging during the COVID-19 pandemic. And that returns to strength in addition to all those other areas of their business that were relatively strong throughout the pandemic, well, that's certainly an area for investors to consider.

JULIE HYMAN: Yes, most definitely. A lot of families probably itching to get to their Disney property, their favorite Disney properties. Thank you so much, Kevin. It was great to see you.