U.S. Market Crash Risk: Kevin Mahn on AI Powered Utilities, Valuations, and the Fed

Utilities are no longer just a defensive harbor for skittish investors, they’re morphing into a key conduit for the artificial-intelligence buildout, according to Kevin Mahn, President and Chief Investment Officer at Hennion and Walsh. “Utilities used to be that boring sector … but now they become a backdoor play into the AI revolution because they supply the power that all of these data centers need,” Mahn said in an interview with AInvest. He added that “all 11 GICS sectors are positive year to date,” an outcome he called “not typical.”

Mahn urged investors not to confuse resilience for inevitability. After what he described as a “record run in the stock market … absent much significant sustained volatility,” he warned that “investors shouldn’t anticipate that lasting forever,” even as money now parked in short-dated cash instruments could “try and play catch-up in the stock market” at “excessive valuations,” he said.

On monetary policy, Mahn said market-implied odds overwhelmingly favor two additional quarter-point interest-rate cuts by the Federal Reserve this year. “I looked at Bloomberg earlier this morning and it looks like the bond market is forecasting a 99% chance of a rate cut next week in October and then [a] chance of a rate cut in their December meeting,” he said, adding that if the Fed fails to follow through, it would catch "the market off guard.”

He contrasted the Fed’s “updated summary of economic projections” with higher near-term tracking estimates, noting the central bank “believe[s] the economy is going to slow to a growth rate of 1.6% by the end of this year,” while “the most recent Atlanta [Fed] GDP now forecast for the third quarter is in the high 3%.” Earnings, meanwhile, are “forecast to be roughly eight and a half percent” year over year in the third quarter, potentially the ninth straight quarter of growth, supporting a soft-landing narrative, Mahn said.

Mahn framed the AI cycle as still developing. “We’re just in batting practice of a double header,” he said, arguing that the current phase is dominated by infrastructure, power, cooling and chipmaking capacity. He pointed to companies tied to data-center buildouts and to the supply chain that feeds AI leaders. Citing an earlier remark he attributed to NVIDIA’s chief executive about multi trillion-dollar AI infrastructure outlays by decade’s end. Mahn said that while marquee technology names have surged, investors should “peel back the onion” to find beneficiaries across the ecosystem. He also cautioned that “AI circular financing deals” underscore how “reliant the large cap players are upon each other,” which could have “short term and … long term consequences.”

His advice, don’t time the market and be sure to align risk with temperament. “I can’t time the market because you got to get it right twice...Seven of the ten best days in the markets over [20 years] came within two weeks of the ten worst days,” Mahn said. For investors who “lose sleep” over a 5%–10% pullback, he recommended mixing in bonds and alternatives to damp volatility, as stated in the transcript.

Beyond the Fed, Mahn said he’s watching U.S.–China trade dynamics. “They need our chips. We need their rare earth minerals." He warned that a prolonged federal shutdown could leave policymakers “flying blind” into the next Fed meeting, though he said that would “assure” a rate cut.