How to manage a portfolio amid geopolitical tensions

After Iran's weekend air attack against Israel, concerns about the potential impacts on the overall market have begun to rise. Mahoney Asset Management CEO Ken Mahoney joins Wealth! to discuss pricing geopolitical shocks into portfolios and market risks to watch.

Mahoney offers suggestions as to how investors can hedge against exogenous foreign relations threats: "One can use, a military defense company like RTX, Raytheon (RTX), is one of the symbols viewers can take a look at. Oil (BZ=F, CL=F), whether you buy a basket or individual stocks, like Exxon (XOM) or Chevron (CVX). There's definitely ways to go around as a hedge, not as, again, we really think technology and the big tech is still the way to go, the outsized earnings that they have, but if you want to say, hey, I want to hedge my portfolio a little bit, inverse ETFs maybe some oil, maybe some defense contractors or maybe selling off 20-25% put in cash, so we get that wish down."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video transcript

- Also, everyone, markets tracking tensions in the Middle East. They're escalating, but Wall Street's worries seem to be fading after Iran launched its first direct attack on Israel from its soil over the weekend. And while minimal damage was inflicted, the world is now waiting to see what type of response Israel will have, and what impact it might have on the markets if larger than a regional war spreads here, if any of that spreads here.

So how exactly do tensions overseas like Iran and Israel's feud impact your portfolio. Joining me now we've got Ken Mahoney, Mahoney Asset Management CEO. Ken, great to have you here with us today. First and foremost, I mean, you wake up this morning, or perhaps you're tracking it overnight, and you see what's playing out in the Middle East, what immediately comes to your mind?

KEN MAHONEY: Well, there's going to be some type of retaliation. There's no doubt about it. And it's going to be another headline, nagging headline that the market has to deal with, which, by the way, it's dealt with pretty good, pretty resilient, considering everything that's been thrown at it, and I think it's going to be more like Fed governors. They go out there and they say we're going to pencil in, rate cuts, or we're not going to have the rate cuts you're hoping for, the market sells off. I think this is going to be very similar along the way.

Every time we get a headline that says Israel is going to retaliate on Wednesday at 4:00 AM, seem like they telegraph these things nowadays, we're going to see a market get hit. So I think, though, for most of your viewers, though, they should still zoom out a bit. This is definitely emotional. It is not fun to be around some of these awful, awful headlines that you read about. But you got to zoom out. You know, we've been through this before and more focus on earnings when they come out, especially next week's earnings, technology earnings, but by enlarge, we want to make sure no one makes emotional and say I'm going to sell everything.

Hey, you may want to hedge a little bit, some inverse ETFs, but don't give it away if you're still planning for retirement long-term, eventually this will settle itself.

- Yeah, Ken, it's a great reminder. I mean, of course, this is one of the news items and events that takes place that you factor away into some of those exogenous events or exogenous threats that we don't see coming. It happens. We have to react. How can someone best exogenous threat proof their portfolio for the future, especially given a year where we're going to have a lot of talk that takes place leading up to the US election here as well about Foreign Relations?

KEN MAHONEY: Right. So different ways to hedge, one can use military defense, companies like RTX, Raytheon is one the symbols that your viewers can take a look at, oil, whether you buy a basket or individual stocks like Exxon and Chevron. So there's definitely ways to go around. Again, as a hedge, not as, again, we really think technology and the big tech is still a way to go with the outsized earnings that they have, but if you kind of want to say, hey, I want to hedge my portfolio a little bit, inverse ETFs, maybe some oil, maybe some defense contractors, or maybe selling off 20, 25% putting cash.

So we get that whoosh down, you have some powder dry. Again, if you're fully 100% invested, you don't get that opportunity. That's why it's nothing wrong with any of those things above that I recommended.

- Ken, as you so rightly mentioned as well and reminded the market trying to figure out where should it place more of its attention, is it in earnings? Is it in the economic data that comes out this morning from the Census Bureau on retail sales? Or is it some of the overseas events that take place? Where do you believe that weighting is right now, based on the activity that we're seeing transpire here today, at least in the major averages?

KEN MAHONEY: Right, I still like to think it's earnings. Look, there's been a lot of talk about the Fed. Look at Nvidia and their revenue year over year, Microsoft, some of these leaders, whether the Fed cuts a quarter rate in June or September, it doesn't mean nothing, really, for them. Again, means a lot for banks and spreads and so forth. So, again, I like this for investors. Yes, there's be a lot of things buzzing around.

There may be some opportunities when we get these big whoosh downs over either retaliation, or Fed Governor, slipping and talking about no Fed cuts, but at the end of the day, I think investor should follow earnings. And we know where to find those earnings, AI. Those companies that already have strong businesses, strong verticals, and now you add AI into the mix, that's pretty good. So I'm looking at Nvidia, Microsoft, Meta, those leaders. Again, even with all the negative headlines, even with the Fed maybe not cutting rates this summer still that's we believe is the place to be, and I think those companies can overlook some of these nagging headlines we're going to deal with.

- Ken Mahoney, thanks so much for taking the time here with us today. Ken Mahoney, of course, who is the CEO of Mahoney Asset Management. I appreciate the time.

KEN MAHONEY: Thank you, Brian.