Why you shouldn't cash out when stocks fall

Welcome to Trader Talk, where we dish out the latest Wall street buzz to keep your portfolio sizzling. I'm Kenny Polkari, and I'm coming to you live from the Yahoo Finance headquarters here in the heart of New York City, a global hub where deals are made and fortunes are built, and the next market move is always just around the corner. Coming up, I'm gonna share my thoughts on patience when investing, and I'm gonna chat with my very good friend Kevin Mann. And then I'm gonna share my linguine puttanesca recipe. We'll get to that at the end. Now let's ju. Warren Buffett said it best. Someone's sitting in the shade today because someone else planted a tree a long time ago. It's a beautiful metaphor for investing and a brutal reminder of why so many people never really build wealth. Everyone wants to shade, but few have the patience to plant the tree. We live in a world obsessed with quick gains. Everyone's chasing the next hot stock and the latest AI trade or the meme name of the week. But wealth isn't built on FOMO or luck. It's built on time, consistency, and discipline. The market rewards investors who think in decades, not in days. Buffett didn't get rich trading headlines. He got rich by letting compounding do the heavy lifting. So here's the truth. Investing isn't about timing the market. It's about your time in the market. The earlier you start planting, the longer your money can grow. That's how small, steady contributions turn into something massive. And if you're starting late, no need to panic. Just start planting now. The best time to invest was yesterday. The second best time is today. For beginners, think of every investment as a seed. Some grow fast, others take years. But if you diversify your garden stocks, ETFs, and maybe some dividend payers, you'll always have something growing. Ignore the noise. Keep. Keep watering. And don't dig up the roots every time the market dips. Bottom line, the shade doesn't appear overnight. It comes from years of quiet, patient growth. So stop looking for the shortcuts. Plant your trees and tend to them. And one day, you'll sit in the shade that you built. Okay, I'd like to now introduce my next guest and my very good friend, Kevin Munn. Kevin is president and chief Investment Officer at Henyon and Walsh. You see the advertisements all over tv all the time. Kevin oversees the firm's strategy, guiding his portfolios across equities, fixed income, and alternative assets. With decades of experience in wealth, Management and portfolio construction. He's known for his disciplined approach to balancing growth and risk in all market conditions. Kevin also serves as portfolio manager for the Smart Trust family of unit investment trusts, bringing a thoughtful, research driven perspective to every conversation about the markets. And Kevin knows how to plant the tree. Please, ladies and gentlemen, welcome Kevin, Kevin Mon to the show. Kevin, it is a pleasure.

It is my pleasure to be here.

It's my pleasure to have you. I love that you.

What an intro.

It's all true. Because it's absolutely true what I said to you. So let's just kick this off. Let's talk about kind of what's happening right now. Interest rates, portfolio strategy, and how investors maybe should be positioning themselves for another rate cut or rate cut cycle.

Sure. Let's think about where we are right now. Right.

Yes.

S&P 500 is up over 15% year to date. We've had 30 record closes coming into this week on top of 57 record closes last year. But think about the first 73 trading days of this year, Kenny. The market was down 10.2% at that point in time because we panicked. We're saying, right, I want to go to the sidelines. This is too much volatility for me.

They panicked over the tariffs. And then, and then the, the nervousness, the angst feeds on itself. And then you throw the algos in there. It just exacerbates everything.

Yes. So when I saw that we were down 10.2% over those first 73 trading days, I turned to my research team and I said, is this a historically bad start? They did the research using AI and they found it was the fifth worst start to the year. So I said, okay, what happened the other four times? And that's where the silver lining was in those other four previous worst starts. From day 74 through the end of the year, the market was higher every single time by an average of 23%. Where are we this year? From day 74 through the beginning of this week, we're up 29%.

Right.

So those investors who fled to the sidelines missed out on a significant upside. This always happens to retail investors.

It always happens. And what's interesting, that move that down 10% really happened in day 69 to 74. It didn't happen in the first 69 days.

It was a pure tariffs.

It was absolutely. So it was April 1st or April 2nd to April 7th, whatever it was. Right. But it was, that was. Those were the days where we actually saw the move.

Significant.

And you know what's interesting? Is that the market can move between 0 and 9.9% and still be considered in the normal trading. Correct. It's when you go to 10% now, you enter a correction phase and over 20%. It's a bear market.

Yes, yes.

So what's interesting, and I don't know if you. If this happened to you, but it happened to me as. Also as a wealth advisor. You know, when the markets start to get antsy, you get clients who call you up saying, what are you doing? What are you doing? Oh, my God. And they get panicky. And so part of a job is also to add. To act as kind of like a therapist.

Yes.

You gotta sit down and walk them through. Which is perfectly okay. I actually enjoy doing that. Right. Yes. And there was one particular client I had that was so panicked, and I said, listen, I'll do what you want. You want out, I'll get you out. I'm telling you, don't do it. Yes. I'm begging you not to do it. Don't make me do this. So he said, okay. Meanwhile, today. Oh, my goodness.

He's thanking you.

He calls me up every day. I love you. Right. But that to your point.

Yes. Always try and do. Is provide historical perspective. We know that history doesn't always repeat itself, but it often rhymes. So we looked at a study through the end of 2023, and this really hits home with a lot of investors. What we found is that over 20 years in the stock market, seven of the 10 best days happen within two weeks of the 10 worst days.

Yeah.

Seven of the 10. I wish I knew when those 10 worst days were gonna be. I don't have a crystal ball. I left it out in the lobby. But I do know, Kenny, if you're not in the market on those 10 best days, you're likely to miss out on the most significant returns that the market has to offer, which is really hard to play. Catch up.

It's time in the market. Right.

Not timing the market.

And listen, I get it. If you're a day trader, then you time the market. I mean, you're in, out, you're in. That's what you do.

That's not Mr. Mrs. Public.

No, but if you're. If you listen, whether you're starting out at 20 and you put $50 a month into it, that's okay. Actually, I tell everybody. I tell my kids, I tell everybody. It doesn't matter what you start with. Start with something and just make it consistent.

Correct.

Right. Because $50 turns into $75 turns into 150, next thing you know.

Right?

Yes. And then it grows over time.

Yes. But if that short term bout of volatility in April made you nervous.

Right.

Made you lose sleep at night, well, then maybe you shouldn't be in a more risky portfolio.

And that's right.

That's what's true to your risk tolerance. Your risk tolerance shouldn't go up when the market's moving up, nor should it move down when the market is moving down. You need to stay consistent with your risk tolerance, your investment timeframe and what your goals are.

And so that's key. Right. You make the point about the investment timeframe. If you're 25 or 30 years old, those days should not make you nervous. In fact, they should make you more anxious to put more money to work. Right. Now, if you're 60 or 70, I understand those days can make you nervous. But then your portfolio shouldn't reflect.

That's right.

That far out the risk scale.

That's right.

I mean, that's a whole other conversation.

That's right. And they need to be honest with their financial advisors. You know, maybe I'm not that comfortable with volatility. No problem. I can build a portfolio that gives you more downside protection, still keeps you invested in the markets.

Right.

But perhaps gives you some income along the way as well.

Right. And gives up some of the upside, but you're going to protect it on the downside. But that's a conversation into your point. That's a conversation you have to have with your advisor. You have to have a risk profile question. You have to understand what your risk is.

Yes.

Versus, you know, what your wife's risk is. Because honestly, honestly, very different. Usually you send each one of them the profile and they come back at both. That's dramatically different.

So we're gonna try and meet in the middle. Isn't that what marriage is all about? Even with investing?

It is always about that. Anyway. All right, so let's talk about. Let's get back to the question I asked you about. You know, we're in this rate cutting cycle, which by the way, let me ask you, where are you on that conversation?

All right, so I think you know where I stand in this. I've contended for quite some time that the Fed is gonna be late to the party.

Right.

And they were late to the party once again. And they will always be late to the party if they're data dependent. What's changed for me, Kenny Y that back in June when they updated their dot plot chart at that Time they lowered their forecast for unemployment. Right. They upped their forecast. I'm sorry, lowered their forecast for GDP growth, raised their forecast for unemployment and slightly raised their forecast for inflation.

Right.

So if they were data dependent at that time, that would have suggested a rate cut back. Then fast forward to September. What changed? Nothing. But they cut by 25 basis points.

And so why. Tell me why you think they did.

I believe that they grew concerned with the employment side of their dual mandate. Finding out that nearly 1 million jobs were not created over the last 12 months that they thought were created.

Right.

Seen some weakness in the jobs market made them more attentive to that side of their mandate. So they need to start cutting interest rates now.

Okay, but unemployment is still at 4.3%, which is historically full employment.

Yes, 4.3.

So this is where it gets cloudy for me. Because I'm saying, okay, wait, okay, you wanna be data dependent, but I look at the unemployment rate and I go, I'm not seeing a spike in unemployment.

But if you look at their forecast, not Kevin Mon's forecast, not Kenny Polkari's forecast, they believe unemployment's gonna rise to 4.5% by the end of this year.

They think it's gonna go up.

Go up even more. They think GDP growth's gonna stay below 2% all the way through 2027. So why keep the Fed Fund's target rate between 4 and 4 and a quarter percent if inflation right now is still in the high twos?

Okay, is four in your mind, though? Is four to four and a quarter percent restrictive to you?

It strikes me as being restrictive, absolutely.

Even though the economy remains fairly robust.

Fairly robust. If you consider 3% GDP growth fairly.

Robust, is it at three point? Didn't they raise the rate?

Didn't they raise it to 3.8 GDP now forecast. But the comforting thing there is now the consumer is coming back. Whereas the first half of the year that was really led by AI industry, infrastructure spending. Now the consumer has come back during the second half of the year. That could bode well for the US economy going forward. But we need lower interest rates. You know why? The housing market. The housing market needs lower interest rates because it's still the single largest asset on most.

Okay, so. So in your mind, where do you think rates should go? Because right now they're four to four, four to four and a quarter. Where do you think they should be?

I think they should get to their neutral rate of 3% by the end of next year.

Okay, hold that line one minute. We're gonna take a quick break and come right back to it. Okay, so three to three and a quarter percent is where you think rates is the neutral rate. That's interesting because I'm not there. I think if we cut rates by another 25 bips to get us to 3 to go to 4, considering the economy remains fairly still robust, I don't see this, this complete disaster in the labor market. And I see inflation kissing 3%. So I'm kind of like trying to figure out, okay, where's my neutral?

So that's not necessarily my neutral. That's Chair Powell state it. Neutral rate for the fed funds target rate is 3%. So if I look at where they need to get to to get to 3% right now they have it modeled out two more rate cuts this year, two next year, one in 27. That gets us to 3%. I would like to see that happen a little bit sooner, especially if GDP growth stays as low and as anemic as they're suggesting. The data doesn't show it right now, but they believe it's going to end the year at 1.6%. You're right. The new Atlanta GDP now forecast is 3.8.

3.8.

What do they know that we don't know?

Well, I don't know. It's going to be interesting. And now that the government shut down, we may not get that data for.

A little bit longer.

And in fact, CPI and PPI are due out next week. We may not get that data unless they decide to go back to work.

Right. The Fed is blind, blind right now.

Which is gonna be interesting. So here's my next question. Yes. Because I'm gonna, I'm gonna play a little bit of like conspiracy theorists. Do you really think even if the government shut down and they don't announce cpi, ppi, they didn't announce the nfp. Do you really think the Fed's got no clue on what those numbers are?

Well, what I understand from Austan Goolsbee is that they have developed metrics using seven different types of data sources to be able to give them a feel for feel certain economic data.

I can't believe that you're going to ask the Fed to try to make policy on information they don't have.

Correct. Correct. But if in fact they don't have accurate and complete information by October 28th, 29th, when they meet next, all they have to go on really is what they had at the September meeting.

Correct.

And that would suggest another rate cut in October, which was their forecast. We may get 50 basis points by the end of the year. We're not getting in October.

Well, by the end of the year it's going to be October. They cut by 25 years. 50.

No, no, another 50. So it'll be another 25 basis points.

Another 25 in December.

Correct, correct. That's what their dot plot charts suggest.

I know, I know, I know.

The dot plot chart is in.

All right, so let's talk about the earnings season is going to start. It actually starts officially on the 14th. Yes. With the release of JP Morgan, because that's the first Dow name. But we're going to get Pepsi and Delta airlines on the 9th. And it's interesting because I think there's some concern around Pepsi, around their snacks and all that stuff. Yet Delta Airline, I think they're looking for, you know, they're looking kind of for inline moderate growth.

Yes.

But Pepsi I think is a concern, or at least that's kind of the chatter. And I wonder what that's really gonna set the tone now. Cause the banks, I think are gonna do fine. I think the banks are expected to do fine. But I'm curious to see what happens. So tell me what you think.

I was very encouraged by that most recent GDP forecast of 3.8%. Not because it was nearly, but because the consumer accounted for over 80% of that forecast. Historically, that's around 70%. So if that holds true, that means the consumer is comfortable spending. That's going to trickle through into a lot of these earnings reports. Right. So right now we're looking at single digits, types of earnings growth, which I believe would mark the ninth consecutive quarter of year over year earnings growth.

For the S and P. For the S and P. S and P is expected to grow 7.8% right there. I think that's.

I wouldn't be surprised if we get low double digits again if the consumer is as strong as this.

Yeah, yeah. It's going to be interesting to see how that goes. Let's talk about diversification for a little bit as we move into 2026 now. Right. How is an investor, if they're doing it themselves, how are they supposed to balance, you know, equities, fixed income, and maybe even alternatives, if they even go in that space.

Sure. So I think you have to start by being true to your risk tolerance.

Tolerance.

Be clear if you're looking for growth or income or a combination of both, and then what your timeframe is. And don't leave any chips on the table. Look at market cap diversification, look at geographical Diversification. Look at sector diversification, Kenny. I've been doing this for over three decades now. You see my hair, right? Yeah. And I've always followed a single adage, being a portfolio manager, and that's to follow the money. Not necessarily follow the money in terms of flows. But where is all the money being spent right now? AI infrastructure and aerospace and defense. You know, what are the two leading areas in the markets right now? AI infrastructure and aerospace and defense. 100%. That's a great way to lean into that, provide some tactical overweights in those areas, but also look to large cap, strong quality dividend payers.

So you make an interesting point, and I don't know if the audience caught it, but let's talk about it. So you have a core portfolio and then you take those sectors that you just identified, whether it's aerospace and defense tech, parts of tech. Because tech can be so many different things.

Right.

We're not just talking Nvidia. There are so many pieces of tech. But you can tactically give yourself a little bit of boost by overweighting.

Absolutely.

In those sectors. Right. So you have your core portfolio and then you, you tweak it around the edges.

Yeah. To try and find a little bit additional growth opportunities, as we call them alpha drivers. Right, Alpha in the industry. Right.

Yeah, yeah.

Another area I love right now, Kenny, is biotech. I think a lot of headwinds right now for large cap pharmaceuticals and a lot of tailwinds for small cap biotech. And I wouldn't be surprised to see more M and A activity down the road.

And if rates come down, that's going to be good for small cap, even better for small cap names and the biotech. It's interesting you say that because the health care sector, the xlv, has suddenly lifted its head. Now some of it, I think was that deal that Trump made with Pfizer and Medicare and all that certainly helped. But I think the biotech names are starting to lift.

Oh yeah. If you look at the XBI ETF, yes. As of April 8th through the end of last week, up around 39%. ETF was up around 34% over that time.

So there you go.

So it's outperforming the market and no one's talking about it except for you and me.

That's the subset of healthcare. Right. Because that's biotechs. But the, the broader health care. Yes. The XLV also, as a result of that, has lifted its head.

Yes.

Because it's been a big underperformer.

Absolutely. I Still think there's more headwinds for them. Congress continues to push them to lower their drug prices, as does President Trump. They have a lot of large revenue producing drugs coming off a patent now being subject to generic pricing. Right. Where are they going to turn to replace all that lost revenue? They're going to have to be acquisitive. Buy these innovative therapeutic solutions, immunotherapies, car t crispr, gene editing, gene splicing. Who's working on those? A small cap biology.

Small cap biotech. Yeah. No, 100%. Yeah. Small cap biotech. Talk about AI for a minute. Where do you think we are in the cycle? I think we're still very much in the infant stages. But where do you think we are?

So I think you've heard me use this before but I've been asked on numerous occasions using a baseball analogy, what inning are we in? And you know what I always say, Kenny, we're in batting practice and this is a double header.

I think you're 100% right. I keep saying we're in the infancy stages, but I think you're right. We're in batting practice.

We're in batting practice. And batting practice involves the AI infrastructure buildout. The games actually invol the implementation of AI that's actually going to transform our economy and society. But that's years down the road and don't expect a return on investment anytime soon. But where the money is being spent right now, where the money is being made is the AI infrastructure buildouts.

Right.

And I think of names such as the companies that are building the data centers. Aecom, Emcor as an example.

Yeah.

How about the companies that are cooling those data centers and the industrials name. Think of comfort systems, energy loading, manufacturing. How about the energy nuclear.

Those small nuclear, you know, NuScale, Smr.

Love it.

Right. Because, because what we do know is that these data centers are going to suck up energy.

Yes.

And the grid's not big enough. The grid is not going to handle it.

It's forecast that by the end of this decade, data centers alone will draw down 10% of our country's electricity supply. 10%.

And you can already see where electricity prices, energy prices are going higher because the data centers are demanding so much.

Yes.

That the, that the utility companies, you know, have to charge a higher rate.

That's why we've got to look to natural gas, we got to look to nuclear. As with American innovation now we're looking at these small modular reactors.

The small module reactors I think is going to be the Key, because they're not these big massive, you know, reactors that blew up, but they're off grid.

And they come to market a lot quicker.

Yeah, 100%. So when we talk about long term, like, you know, my introduction was all about planting and tree and. Right. Long term wealth building, about being disciplined. About, about, about creating a portfolio and then believing in it so much. And listen, it doesn't mean that you buy something, you just leave it. You have to tweak it as the world changes. So investment reasons why you own or not own, something changes.

Yes.

But you have to stay disciplined to that model.

Correct.

Disciplined to that mindset.

Correct. And going in and out of the market isn't tweaking your portfolio.

That's right.

That's making a short term decision that's going to have a long term consequence impact.

100%.

Make little tweaks to your portfolio as opportunities arise. We haven't talked about international stocks just yet. Did most of the listeners know that emerging markets are actually doubling? The return of the s and P500.

Emerging markets have been crazy.

Emerging markets.

Even European markets.

Even European.

Up 22%. Spain. Yeah. I love Italy.

So there's some benefit to adding Jack or you do. And I want to understand what you said before about that pasta dish.

Well, we're going to talk about that. Eat it.

So we couldn't pronounce it.

We're going to talk about that right now. So I'm going to have you back on and we're going to, you know, in 2026, as we get closer to the end of the year, we'll have you on and talk about kind of what it all shaped up to you. But now I want to bring on and introduce you to my linguini puttanesca. Right. This is pure Naples. It's bold, it's briny and it's a little mischievous. Right. The legend has it that this dish first appeared in the bustling working districts near the port in Naples sometime around the mid 20th century. Right. The story goes that the local signorine, like the women of the evening, they needed a hot meal very quickly. Something that was inexpensive. It was made from shelf stable pantry ingredients. So they threw together tomatoes, anchovies, garlic, olives and capers. And they let the aromas all come together and waft outside the windows to tempt the men and the sailors to come in for some late night dinner. Whether or not that tale is true, it really sounds good. Right. The name stuck anyway, and so did the spirit of the dish. It's fast. It's bold. It's a little bit risque. Today, puttanesca is a classic in Neapolitan kitchens. It's a dish my wife loves. It's a sauce that wakes up the senses with the salty tang and red pepper heat and a punch of the Mediterranean. You can scan the QR code on the screen for the full recipe, and trust me, you can thank me later. That's a wrap for today's Trader Talk, but the conversation continues. Subscribe on Apple Podcasts, Spotify, Amazon Music, or wherever you get your podcasts. You got questions or topics you want me to cover? Email us@tradertalkahooinc.com because I'm always listening. Until the next time. Stay sharp, stay disciplined, and stay in touch. Take good care. This content was not intended to be financial advice and should not be used as a substitute for professional financial services.