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February 20, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, February 20th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. I was on the road this week at an off-site meeting for our Key Wealth group and it was a tremendous opportunity to spend time with our colleagues as we focus on our teams and our ability to serve our clients in an exceptional manner. So what a great opportunity to get together with our team this week. And speaking of great teams, what a congratulations to the Olympic team for USA Women's Hockey as they won the gold medal yesterday in an overtime victory over Canada. What an exciting opportunity and again, sincere congratulations to the USA Women's Hockey team for taking home the gold. With that, I would like to introduce our team here on the Chief Investment Office as panels of investing experts who are here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's economic and market activity, it was a pretty light week in terms of economic releases until we got to today, so we have 3 updates of which we will cover those two from this morning at 8:30 here in our update of our top three. So first, beginning earlier in the week, we had the update on industrial production, which is covering the manufacturing industry, and we did see that there was some pretty positive signals coming out for the month of January, where industrial production was up 0.7% for the month. Now this is the preliminary estimate, but it's still pretty favorable at 0.7% because December's was at 0.2%, which was again a little bit above 0, obviously, and it was the third month in a row where we had positive activity in terms of that report. So industrial production fairly decent for the month of January. Now the other two updates were much larger in terms of their impact on the economy in terms of readings, so the second update we have for you is the GDP report that came out this morning at 8:30 (AM EST) from the Bureau of Economic Analysis, and it is the advance estimate or the first estimate for the fourth quarter of 2025. Now this report has been delayed due to the government shutdown that occurred in 2025, so we finally got the data here on February 20th. Now the report for real GDP came in at a 1.4% number for the fourth quarter of 2025, which was down from the third quarter of 2025, which was at a 4.4% number. So it looks like a pretty big drop in terms of activity in terms of overall real GDP. Consumer spending continued to be the largest driver of the overall GDP report in terms of its components, while government spending was a significant deceleration and a decline on a negative attribution to GDP. Now, some say this has something to do with the government shutdown back in the fourth quarter of 2025, obviously. I'm not so sure exactly what those numbers are correlated to, but again, it is part of the equation. And third, also this morning at 8:30, we also received the Personal Consumptions Expenditures Report, which includes not only consumer spending, but the inflation on the read there, also at 8:30 this morning. So PCE inflation came in a little bit hotter than expected on a month-over-month basis, not only for all items at 0.4% for the month, but core, excluding food and energy, also at 0.4% for the month. That also translates into the year-over-year number for the month ending in December, which showed a 2.9% all items increase and a core, excluding food and energy, at 3% increase. So both of these were up, which is not a favorable sign, hotter than expected, but not dramatic. So December's all items were 2.9%, which was up from 2.8% in November and 2.7% in October. The core, excluding food and energy, was up 3% year over year in December, which was up from 2.8% in both November and October. So inflation continues to be persistent and headed in the wrong direction. We'll talk with our panel about that and what it might mean for the Fed and the economy. So let's turn to you, George, for your commentary on those data points and what it might mean for the economy and additional thoughts that you might have. George?

George Mateyo [00:04:58]

Well, Brian, we're sitting here in Northeast Ohio, and I think overall the economic data kind of reminded me of the weather where it's just a bit soggy. And it doesn't mean that things are terrible or really rosy either. It just feels like kind of an overhang of kind of some soggy news where I think the numbers suggest that the economy is doing okay, maybe a little more sluggish than people thought. And I think, at least based on some of the growth numbers, but I think The inflation numbers also probably are somewhat soggy in the sense of probably a little bit heavier and a little bit hotter than people expected to. So I don't think anything is really falling apart, but I do think things are just in a state of sogginess, I guess. I'll just use that term again. And I think probably more than that, the market seems to be going through a series of questions about the ongoing strength of things. We've seen the weakness more recently in part to the credit market, particularly private credit. And I think that's one thing that's going to be an ongoing theme for much of this year. Private credit was a part of the market that grew a lot in the past several years, and now people are coming to realize that maybe some of that growth has some consequences. Importantly, from our perspective, I think credit, and in general anyway, is pretty solid, but I think it really is going to be contingent upon solid underwriting, and not everybody's going to come out pure from that. So I think there's going to be some choppiness there. We still have this ongoing situation around AI and what does that mean? That continues to be a source of disruption for many industries and companies. And that's probably going to be lingering for quite some time. It's also somewhat concerning or maybe causing people to question rather, what does AI do for the overall strength of the labor market and whether or not maybe as many jobs will be needed going forward because of AI. And then lastly, of course, geopolitically, we have a lot of things that we're trying to navigate our way through. It seems like tensions are starting to rise up again in the Middle East. And that's always been a source of volatility for the markets. So I think net-net, I just feel like there's a lot of general sogginess. I wouldn't call it anything worse than that. But I think the market's probably in for a bit of churning, as we've talked about for the last couple of calls here. And of course, we have to just navigate our way through that. So the best thing I think we probably would recommend doing is just being very diversified, knowing what you own, knowing why you own it, and being prepared for volatility, because it seems like that's going to be here for quite some time. At the same time, Rajeev, one thing I did mention, of course, is the ongoing uncertainty about the Fed and who's going to be leading the Fed. And that's still unresolved, I think mostly, at least he's not been confirmed yet. So, what do you think about this? And how do you think the Fed is actually processing what's happening more at the macro level from your perspective?

Rajeev Sharma [00:07:35]

Well, George, I think the Fed remains data dependent. I don't think we get any rate cuts under Fed Chair Powell anymore as his term is going to come to an end. But if you look at the data, and we saw the GDP numbers, we saw the PCE numbers, and I feel that the market is much more concerned with the PCE number. If you think about the upside surprise to inflation figures, that could be a concern for bond investors. If we look at the GDP figures, that should support treasuries. We did see a downshift in the U.S. economy, but it's all about the government shutdown, the impact on growth there. So the bond market didn't really look at the GDP numbers and really react too much to that, yields were slightly lower when that print came out. But the market was very fixated on PCE data because they know that the Fed, that's their preferred measure of inflation. And really, that changed everything with investors starting putting more weight on the hotter than expected inflation report. We saw yields move higher in the front end, and overall, the yield curve bear flattened. And if poor PCE stays around this 3% level, it's going to be increasingly difficult to get Fed consensus for two rate cuts for 2026. Again, one report doesn't make a trend, but I do think it changes expectations. And that's why yields are higher post the inflation report. And the PC report somewhat validates the Fed's emphasis on being data dependent and their continuing narrative for patience. Already heading into the inflation report, we saw demand for duration start to fade. And this is likely to be the first week of this month where we see yields higher across the curve. And then we also had the release of the FOMC minutes this week from the January FOMC meeting. And if you parse through those minutes, you will read that the Fed remains confident that it can somehow engineer a soft landing. The broad opinion was to keep rates where they are, keep it steady. And there seems to be little urgency to cut rates before having the supportive data to do so. Now, to be noted is that there's increasing divergence amongst Fed members. Some officials argued for a pause. And there were actually other members that argued for a rate hike if inflation re-accelerates. And that's noteworthy because the markets are pricing one direction right now. That's an easing path. So anything that changes that narrative, I think, does impact the bond market quite a bit. The minutes pushed back on the one direction of the Fed that we're going to be cutting rates. Cuts are not off the table, but the bar remains high. You need more disinflation to get that to happen. And on the other side of the bond market, if you look at credit spreads, investment-grade spreads, they were tighter on the week by one basis point, and high yield was tighter by five basis points this week. But for investment-grade, preparations are already underway for about $50 billion in new issuance next week. Add to that $183 billion in treasury coupon supply, and that's going to happen between Tuesday and Thursday. It's going to be concentrated on the two-year, the five-year, and the seven-year. So you could start to see rates start to move higher in the front end, primarily because you're going to have all the supply coming to market. And so I think that's going to be something important to keep an eye on.

George Mateyo [00:10:35]

I think, Steve, the other source of uncertainty, again, has to do with this AI issue, I guess I could call it broadly. We've seen certain industries really fall apart lately, and it seems like there's been some sort of great concentration around how they'll actually fare if AI really is kind of lives to its full potential and we start to see some of these things really take hold. I don't know if you've got. got a view on certain sectors or certain industries. But it does seem like we have been seeing invest become more discerning around AI. We've seen probably more uncertainty about the implications of that. At the same time, many companies actually seem quite the benefit from it in terms of actually it would probably result in greater productivity. So are you thinking anything differently about AI as you kind of navigate your way through earnings season? Any thoughts that you might have on that would be helpful too?

Steve Hoedt [00:11:25]

Well George, when you think about this, what's been interesting to me is to look at the reactions that the market has had. And I think it just goes to show how confused people are by what's going on. And I mentioned it on the call on Monday. But it really does feel like we're in a period of time when more change is happening in a shorter period of time than we've likely experienced in our investing lifetimes. So literally, you've had paradigms turned upside down. It's not a shock to see these large rotations happening underneath the hood of the market. And it goes a long way to explaining why you've got cyclical stocks outperforming year-to-date tech and the mega-cap names basically going sideways and consumer staples up at the same time. Because, again, people are confused. And I think that what you look at, tech is very difficult to try to sort out. Clearly, some of the enabling technology things that are more infrastructure and semiconductors are likely going to be clear winners. But once you go beyond that, there's not much in tech that isn't impacted by AI one way or the other. And people are not sure that it's impacted positively anymore because you've got very profitable business models that could be disintermediated. And if that's the case, you know that that again that that creates all kinds of problems and I'm thinking about the software industry in particular there but you know it's been a movable shooting gallery in terms of every industry every industry seems to be under the potential for people to decide that it could be another new industry of focus for what could be disrupted here so people are migrating toward hard assets, namely things like energy, materials, industrials, places that have things that have factories. You can't replace a factory with a AI generated software program. So people are going there and people got to eat. So they're buying staples. So I think that the response by investors is very logical. Go to the stuff that you know is not going to be going to have problems here and avoid the stuff that does. But what that's created for the market is I just was pulling up the S&P 500 chart again this morning as I get ready to do our weekly chart pack. And it struck me that the S&P 500 right now is at the same level that it was at the end of October. Like literally, we've experienced four full months now almost of going nowhere. And that's not something that I think everybody is not necessarily paying all that much attention to. We're hanging right around a little less than 7,000, feels OK, but we haven't gone anywhere in four months now. So that's something that starts to become a bit concerning. The earnings line has continued to go up and to the right. So that provides some underpinning for the market. But the longer that we continue to hang around at these levels, the more potential there is for something to come along and surprise the market negatively and to see us roll over and have a bit of a correction here. So that's something that I'm starting to become aware of. I'm not calling it right now, but I'm telling you, I'm starting to feel like the fact that we've been churning here for four months is now not, I'm thinking it's more negative than positive. So we'll have to see how it goes as we move through the next few months. Clearly, we've got a lot of uncertainty. The tariff stuff this morning just injects a little bit more uncertainty into the market. Are there going to be refunds? Are there not going to be? What are they going to do next? So here we are back to the same stuff we were dealing with last year. And I think that we don't need that. You saw a little bit of a positive knee-jerk reaction in the market this morning to the tariff announcement from the Supreme Court. But we're only talking about an S&P now that's up three tenths of a percent. So I think the market is seeing through this again, too, and understanding that there's going to be an injection of more uncertainty here.

Brian Pietrangelo [00:15:51]

Let's take a pause, folks. On the panel, Steve, you just mentioned it. So for our listeners listening right at this time, we are recording the podcast as the news breaks the wire from the ruling from the Supreme Court on a six to three decision against most of the provisions on the IEPA tariffs. Those are the International Emergency Economic Powers Act tariffs that were implemented by President Trump and his administration back in 2025, known as Liberation Day. So there are some outcomes here from and again, we just got this on the wire. Thanks, Steve, for bringing it up. And we'll go to our panel. George, what's your reaction to this? And then we'll come back to Rajeev and Steve.

George Mateyo [00:16:29]

So, Brian, I think we talked about this. earlier this year, maybe even end of last year, when we started talking about our 2026 outlook. And you're right to call out the IEPA label in the sense that when the administration put forth these tariffs, they use a certain statutory provision that said that basically they, in their opinion, they thought that there was a national or maybe an international emergency that necessitated tariffs. And they use that statute because they could probably do that most efficiently and effectively, right? That was something they didn't have to get They could almost front run Congress, so to speak, and actually put on these tariffs in a very expeditious fashion. So now the Supreme Court has said, No, the administration, you probably went too far. You overstepped your bounds. You probably needed to consult Congress. I've not read all the ruling yet, obviously, but I think that was probably one key takeaway where it says to me that the Supreme Court ruled that the administration maybe on a procedural basis, probably kind of went about this the wrong way. And there's all kinds of interpretation of that, and that's not a judgment call, that's not a political statement, but I think that's just my fast, quick interpretation of it. I think what probably the bigger thing, as Steve mentioned, is that the market reaction will probably be somewhat muted. There'll probably be some sigh of relief, because I think the market was right to be somewhat concerned about tariffs last year, in the sense that when you impose tariffs, it's a tax. And when people are taxed, businesses are taxed, You know, spending usually goes down and the economy weakens, generally speaking. We didn't really see that in the second half of last year, even though there's a lot of discussion on tariffs. But nonetheless, I think many companies kind of grew through that. We still haven't really known, we really don't know, frankly, exactly that we've been paying these tariffs thus far. So there's still a lot of unknowns. But I think the bigger takeaway for our listeners is to recognize that the administration has other ways of actually imposing tariffs. And my suspicion, Brian, is going to be that the administration will come out with some statement maybe later today or maybe over the weekend or early next week, I think.

Steve Hoedt [00:18:29]

Already have, George.

George Mateyo [00:18:30]

Oh, okay, there we go. Well, didn't take that long. Well, you can read it to me, Steve, but I think...

Steve Hoedt [00:18:35]

No, Trump says he has a backup plan according to...

George Mateyo [00:18:38]

Well, there you go. Yeah, I think this is... This has been something that people have been expecting for about at least a month now that the Supreme Court would make the ruling sometime in January. Here we are in kind of mid-February, and now they've come out with the ruling. So not really surprising to see that, I guess. And again, I think the bigger takeaway is that what is this going to mean? I think it's probably going to mean probably a little bit less growth, a little bit more inflation. But again, the real question is who's going to pay these tariffs is the ongoing debate. And meanwhile, I think the bigger question, at least from the the fiscal side, meaning the governments themselves, is what's going to happen with their debt situation. And I think the government would probably prefer us to see these tariffs being imposed so we can actually get our deficit down a little bit. That's starting to happen really, really a little bit. You have to squint to see it, but it's happened just ever so slightly. But again, I think what Rajeev is going to be focused on, I would think anyway, is the bond market, because that'll probably be the real tell for us in terms of we're seeing any type of real fiscal pressures. So again, I don't think this changes the game too much. As Steve talked about from the market perspective, there's a lot of churning underneath the surface. And so again, I kind of came back to what I said earlier, where I think just being uber-diversified right now is going to be what matters most. That means owning bonds, that means owning international securities, that means owning value stocks. I mean, I think for the longtime, growth stocks were really all the rage. Maybe growth gets a bit on this news this morning. Growth stocks might actually do better in the second half of this year if things really start to slow down from the economic perspective. But we also have some stimulus that's coming out. We haven't even talked about that, but we still have this one big, beautiful bill impact that's all going to ripple through probably the first half of this year. So, net-net, I kind of think that, again, it's just going to be kind of one of these things where we end our way through this in the first half. And as long as the overall trajectory stays Positive with respect to earnings and overall economic growth, we'll be okay, but I think it's going to be kind of a choppy environment for some time.

Brian Pietrangelo [00:20:31]

Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And before we close the podcast today, I want to give you a heads up on a national client call that we are having coming up on Wednesday, March 4 at 1pm in the Eastern. We have our head of financial planning, our National Director of Financial Planning, Tom Jarecki, bringing a guest speaker on, Brian Portnoy, where we're going to have a fantastic discussion around achieving true financial well-being and going through the process of how the mental brain thinks about what's going on in the markets and the economy and how you can apply that to your financial plan and to your financial well-being. So again, if you are interested and have not received an invitation, please reach out to your financial advisor or your relationship manager. Again, coming up on March 4 at 1 p.m. Eastern Standard Time, our national call, Navigating Noise, Finding Meaning, a conversation with Brian Portnoy and Tom Jarecki. So thanks to our listeners for joining us today, and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up again next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

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February 13, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, February 13th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we approach the halfway mark in February, we've got a lot going on, including tomorrow. The 14th is, of course, Valentine's Day. On Sunday, we've got the National Basketball Association All-Star Game, which is quite fun. And on Monday, we celebrate President's Day, which was incepted to honor both President Washington and Lincoln, but is now extended to all presidents. And also, since we are midway through the month, we'll talk about two month-long celebrations. The first is Black History Month, which offers the opportunity to celebrate African-American history in the United States. And we also have American Heart Month in the month of February, which is a nationwide celebration of observation to spotlight cardiovascular disease. It was actually established back in 1964, and the month encourages individuals to adopt healthy habits, manage blood pressure, and learn CPR to save lives. And in addition, some of the activities during the month include the National Wearing Red Day for Women's Heart Health. So supporting those two month-long causes certainly takes a lot of interest and makes a lot of sense. So please do what you can for those both month-long celebrations. With that, I would like to introduce our panel of investing experts. Some might say they're all stars in their own rights, here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, Rajeev Sharma, Head of Fixed Income, and Sean Poe, Director of Investment Research. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got three key updates for economic releases this week, and we begin first with overall retail sales. Retail sales for the month of December, it's always a two-month lag, came in this week and worth $735 billion, up 0.0% from the previous month, so essentially flat. And that is a decline from November's retail sales, which were up 0.6%. So ultimately, we have to look at this as one of multiple indicators with regard to consumer spending and take into consideration that some things may be slowing as we move into the new year. And second, on Wednesday of this week, we got the delayed employment situation from the Bureau of Labor Statistics, which was supposed to come out last Friday, but came out this Wednesday instead. And that all-important report not only has the new non-farm payrolls for January, which saw a gain of 130,000 jobs, while the revisions for November and December were only about 17,000. So pretty good net-net month for new job creations. Overall, there was strength in the services industries as well as strength in the healthcare industries. We also get the unemployment rate for January out of that same report, and it ticked down by 0.1% to overall 4.3% unemployment rate. So net net pretty good news for that monthly report. In addition, we got the annual revision from the employment situation report for new non-farm payrolls from the month of April 2024 through the month of March 25. Now this is typical on an annual basis. There are revisions to get more accuracy and ultimately the numbers for the total year will revise downward by 862,000. So that sounds like a big number, and it pretty much is. However, it was better than expected. So ultimately, we've got a decent report this month. And third, we received the Consumer Price Index measure of inflation from the Bureau of Labor Statistics just this morning. It was delayed only by two days, but ultimately got that report today, and it showed favorable news in that the year-over-year increase for inflation was only 2.4% for the month of January. In addition, the core, excluding food and energy, was up 2.5%. So both of these were an improvement from the December numbers headed in the right direction, meaning we want to see inflation recede. Some of those numbers were driven by lower energy costs, and to some degree, we've also seen a tick down in the overall cost of shelter. And so that's a big component of the CPI calculation, so it's good news headed in the right direction. Again, we'll have to consider whether this continues to be a trend more months than just one. We also had some choppiness in the stock market this week. We'll get Steve's take on that. But first, before we do that, we'll go right to George to get George's reaction to boast some pretty powerful information this week, not only on the employment situation report, but also on the CPI report. George, what are your thoughts?

George Mateyo [00:05:17]

Well, net-net, Brian, I think the overall reading on the economy is that it's just doing fine. It's OK. It's not spectacular, but it's not falling apart. I think we could kind of parse out all kinds of data in many different ways. People, for example, were probably expecting a lot worse than what we got. And so it's better than expected on many accounts. And that's probably good enough for now in the sense that the recession risk still seems to be in the distant future. I think if I want to get really precise about it, you could look at the employment numbers, for example, and I think the journal covers pretty adequately, so I won't spend a lot of time talking about it, but healthcare, which is a big part of the economy, healthcare was the big source of job creation. And I think some people take exception to that in the sense that, well, yeah, it's a big part of the economy, but at the same time, it's not maybe the true industrial manufacturing part of the economy that people might have expected to see some growth, so they could kind of quibble that. Again, I think overall the numbers are pretty suggestive, the fact that the overall labor market's still in okay shape. And then similarly, we saw the inflation numbers this morning that you mentioned, and I think people are somewhat pleased by the fact that inflation is not, again, spiraling outta control, but at the same time, people are maybe parsing the numbers and thinking that, gee, the housing component of inflation might have been a little bit artificially soft, and that I mean, that it might've been driven down by immigration and some other trends, that, again, are not really truly reflective of the inflation situation, which will probably show up in the next week or so when we get the PCE report that the Fed books have. So again, overall, I guess, again, I think the economy is in okay shape. I think to some extent, the economic regions right now are still somewhat less relevant because frankly, we're still catching up from the pandemic and we're still catching up, frankly, from the shutdowns of last year as well, the government shutdowns that rippled into this year too, of course. So I wouldn't suggest that the linkage is broken, but I just think that there's probably the market's probably digesting other things in real time. And frankly, probably trying to get its heads around where we're going with respect to the future outlook. Because again, next year could be an in the sense that some of the stimulus that the economy has been accustomed to right now might start to fade. We might start to see some fading of the AI spending, which again, is still massive and probably really driving a lot of the activity overall. And again, I think some of the earnings power from those companies might also start to ebb a little bit in the sense that we've seen probably a pretty good boost in earnings from AI spending, other things as well. And maybe as we turn pages to next year, that might fade a little bit. So again, the outlook wouldn't be bearish necessarily, but I think it just might be a little more cautious as we approach the second-half. I think at the same time, Rajeev, I think about how the Fed's processing this, and of course, the Fed's a bit preoccupied with who's going to be the next Fed chair and some other things in the near term. But I think that the inflation report this morning probably gives the Fed some room to cut if they wanted to, in the sense that the inflation situation isn't spiraling out of control. But I'm not sure if they really need to cut either at the moment, given the fact that the employment numbers were pretty okay. What do you make of that? And how do you think the Fed is processing what the data that came out this week said?

Rajeev Sharma [00:08:29]

Well, it's a very good question, George, because I think, you know, you get this inflation reading, it comes below forecast. And you see the reaction of the market immediately. We saw yields move lower across the Treasury curve. Now, specifically, as soon as the CPI numbers were out, the two-year Treasury note yield, which is most sensitive to Fed policy, that moved lower by six basis points right off the bat and got to 3.4%. And that's the lowest level we've seen on the two years since October of last year. And that's a direct result of market expectations about what the Fed's going to do with this information. Those expectations are now shifting that we get our first rate cut. It's expected to be in June of this year. And that's not all. These softer inflation numbers, now the market's starting to think about free rate cuts for 2026 rather than the two that the market is expecting before the inflation report released. If you look at current odds, traders are pricing in roughly 63 basis points of easing for the year now. That's the equivalent to around 50% odds of a third 25 basis point rate cut coming in December. One data report does not make a trend, but it definitely shifts market expectations. And it should also make the Fed feel a little more comfortable when it comes to cutting rates. They do have some more breathing room, but they can look at this data and say, we've been looking at inflation data. I'm sure they're going to want to wait for the PCE numbers, which is what they really go by when they look for inflation. But this inflation number comes two days after the delayed monthly employment report that showed solid hiring and a drop in unemployment rate. That labor data actually caused traders to pare back rate cut expectations and move to July being the first rate cut rather than June. This is how quickly pieces of data can change market expectations. I think the Fed doesn't move as quickly as the market does. The Fed's going to take all this information as it comes to them, and they're going to decide when is that first time to do a rate cut. I think that's going to be very important. They have said in the past they're data-dependent. I think they'll continue to be that way. But bond yields were already declining during the week. We saw volatility hit the equity market, and investors immediately made a run to safety haven assets, which is namely treasuries. We saw the 10-year treasury note yield decline 5 basis points just this week to 4.12%. That became a 2026 low. And in turn, it pretty much erased losses created by the strong labor report that we saw earlier in the week. The bid for bonds has staying power if this risk-off mode continues. Even the 30-year bond fell 8 basis points in a day and got to 4.73%. That's the lowest for the 30-year bond that we've seen since last November. And all due to the tech-led route that hit stocks. So momentum-driven buyers also jumped in on the week. There was a 30-year bond auction this week. Nobody thought that bond auction would do good, but because everything came around the same time and this risk-off sentiment hit the market, even though the yield that you got for that 30-year bond auction was anything but optimal, again, did very well. A lot of investors jumped into it. And that's, again, a signal for safety haven demand. Now, what we always do talk about is credit spreads. And we've talked a lot about overall investment-grade credit spreads being very, very calm and in a very nice tight trading pattern. But if we look under the hood at specific sectors, technology has been the worst performing segment of the investment-grade credit market. Energy, materials, autos, industrials, They've all remained pretty strong this week. They've been outperformers, but tech is on the opposite end of that spectrum. And the scare in software companies drove the sell-off, but also AI hyperscaler mega financing deals that hit the market over the past two weeks, that's also had an impact on how tech has performed. These AI hyperscalers are just getting started on their plans to fund the AI boom for the years to come. So we're going to have to really see how this plays out and sector specifically what happens within investment-grade credit.

George Mateyo [00:12:27]

Rajeev, I'm really glad you called out the relative weakness inside some of the sectors because we've seen the same thing, I think, kind of play out in the equity market, Steve. I think you'd agree with that where overall headline numbers are still pretty buoyant or maybe kind of flat, maybe more specifically, depending on which index you look at. But beneath the hood, as Rajeev's pointed out, there's a lot of churning, right? There's a lot of kind of cross-currents and a lot of sectoral differences and style differences inside the market itself. How are you thinking about this? And more specifically, Steve, kind of give us the latest of your thinking with respect to AI and what it's doing to the economy. And certainly, certain market sectors and companies.

Stephen Hoedt [00:13:00]

Yeah, sure, George. First, to your point about the market, we're back below the 50-day moving average again. So that's always kind of a first sign of things weakening a little bit. But under the hood, there's been a couple of things that have caught my attention this week. First, when you look at the increase that we've seen in volatility over the last couple of days, it's been very interesting to me to see the fixed futures curve modestly invert only a few basis points, but the fact is that you don't see the VIX future trade below the near-term VIX future without there being some concern in the market. So it's something to pay attention to as we move forward here. If that inversion deepens, it kind of signals that we could be in for a deeper correction here for the market. The other thing is, The dispersion of returns here has moved into the lowest decile across the large cap universe. And if you look historically, that's not necessarily been a portent of terrible things, meaning like bear markets and stuff like this, but it has signified soft market conditions, meaning that the return over the next three months or so is likely not going to be great. I mean, I think it goes directly to this idea that there's rotation within the market, there's churning. And when you go through these churning rotations, the market doesn't tend to make a lot of headway. So when you put all that together with this kind of, I told my team, it's like there's a movable feast in the market where bears are feasting on different sectors and industry groups on a rotating basis because of the potential impact that AI could have. It's like last year we were all focused on what's all the good stuff coming from AI. And this year the focus is on the who are all the losers. And it seems like everybody's a loser right now. I mean, yesterday it was it was trucking companies a couple of weeks ago with software companies. And, you know, it's like anything and everything in between trucks and software, which is pretty much almost everything seems to be potentially under the gun for people to assume that AI could be a disruptor or disintermediator. So I think until we get through this period, you're going to continue to see this rotation toward what people have called halo stocks, which stands for hard assets and low obsolescence. That stuff is very difficult. It's very difficult to replace. It's things like chemical plants, petrochemical plants, making stuff with manufacturing, this kind of thing. You can't disintermediate that with an AI agent. So the market has rotated toward this kind of stuff. And we think that is a trend that likely is going to continue to have legs as we move through the next few months, because we don't think that this AI situation is going to resolve itself quickly.

Brian Pietrangelo [00:16:15]

Steve, great update. And I'm going to have to remember a new acronym now, HALO. I was thinking of angel investors when you said that, which is a great segue to move from public equities from your camp, Steve, to private equities with Sean Poe. So Sean, thanks for bringing it into the conversation with us today on the podcast. Sean is a director of investment research in our multi-strategy research group. And Sean, we want to talk a little bit about private equity and more importantly, the IPO market. So let's have a quick conversation and talk specifically for our audience members. What is an IPO and why do they occur?

Sean Poe [00:16:50]

Yeah, thanks, Brian. So yeah, despite all of the volatility we just discussed, there's been, you know, a lot of rumblings lately in the media on the IPO window reopening. You're hearing about names like SpaceX and OpenAI planning potentially to go public this year. And of course, investors are rightly asking, what does this mean for my portfolio? So as you ask, let's start with the basics. What is an IPO? Why do companies even go public? So an IPO stands for initial public offering. Very simply, companies offer a portion of their equity to public markets in exchange for an influx of funding. For a lot of years, this was viewed as sort of the crowning achievement. A company worked its way through several rounds of private financing finally got to the point where they were stable enough and growing fast enough to bring it public and really get sort of that biggest influx of cash. It's worth calling out, there are a lot of costs that come with being a public company, of course, in terms of increased sort of regulatory scrutiny, an obligation to be very transparent and reporting on a quarterly basis, a lot of details that you really don't have to when you're on a private company. And so, if we rewind five years ago, the IPO market looked very different than today. It was kind of the hottest time for IPOs in quite a while. 2021, there were almost 900 IPOs, over $300 billion raised. So what led to this, that was the era of ultra low rates, pretty easy sort of overall monetary and fiscal conditions. And that was just sort of a wide open window for a lot of companies to go public. So then the window slammed shut, and it kind of took people by surprise, I'd say. But there were rapid interest rate hikes. I'm sure many listeners remember that. So that caused much tougher valuation standards in public markets. There was a lot of volatility. Public valuations fell sort of below the most recent private levels of valuations. And then there's all the headaches with going public. I mentioned the regulatory burden, the potential for market volatility. And then finally, it's incredibly expensive to go public. Six plus percent of your value is going to get eroded by IPO bankers and transaction costs. And so what happened was a lot of private companies that otherwise would have gone public said, Why bother? I can continue to raise money in private markets, and I don't have to deal with all the headaches of going public. What this led to, which was pretty astounding, was a delay in sort of the, if you think of the age of companies going public, it reached a height of 14 years in 2024, which is almost double the historical norm. It was so pretty fascinating to see sort of how that backlog built up. All right, so now that I shared the sort of bad part of it, now the IPO window might be reopening. So why would that be? Marketing conditions have generally improved. Volatility eased a bit, though potential for, of course, to come back into the market. Inflation appears very controlled. Interest rate expectations are very stable. Like I said, there's this big backlog of private companies that have sort of built their way up over many years and are looking for that next round of fundraising. No surprise, a lot of these companies are AI players where the capital needs are quite intense. And so it's very appealing to be able to go out to public markets and raise that next round.

Brian Pietrangelo [00:20:41]

That's great. So Sean, think about it from the investor's perspective. What does it mean in terms of opportunities for someone in their portfolio to take advantage of this? Not necessarily the IPO 'cause you gotta get in the shoe with the wire house, right? But more so in portfolio construction. How should they think about it?

Sean Poe [00:20:58]

Yeah, great question. So a couple of things to remember that you alluded to. Getting access to IPOs is hard in the first place. Banks are gonna prioritize their large institutional partners, valuations are going to be high to boot the returns and sort of the terms around an IPO are very restrictive for investors. And so you might see sort of a first day IPO pop. I'm sure there's a lot of headlines around that, but the longer term performance tends to lag broader markets. The lockups are such that you are holding a newly public security for up to 180 days. And so you can't even benefit from that. So what should investors actually do? The data suggests that the best returns here, if you want to play sort of this emergent dynamic, would be through the private markets. So not actually playing the IPO itself, but getting in around or two or three before the IPO. So the best avenues would be private equity and venture capital, broadly, where you can participate across sort of multiple financing rounds. And these are the years when the groundwork for the extreme growth sort of actually occur. And so if you kind of approach it that way, by the time a company like SpaceX goes public, the private market investors have already participated in the majority of that value creation even before the IPO event. I will say, of course, with any sort of private market investing, it's not for everyone. A lot of things to consider there in terms of thinking about sort of liquidity management, tax considerations, portfolio construction and sizing. That's where I think having an advisor is really going to matter. So, yeah, I think it's starting to be actionable. But if I had to sort of sum it up, I'd say that with the IPO market reopening, the opportunity, the signal of saying, hey, private markets are starting to get sort of more interesting again, and just sort of be aware of the constraints as you go into it.

Brian Pietrangelo [00:23:11]

Well, thank you for the conversation today, George, Steve, Rajeev, and Sean. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information. And we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:23:44]

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA.

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February 6, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, February 6th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We've got a big weekend coming up for sports, and I'm sure most everybody knows the Super Bowl is going to be held on this Sunday. So it always attracts a lot of viewers, not only for the football, but also for the commercials. But also today, in case you missed it, it's the opening ceremony for the Olympics from Milan, Italy. So we're going to get a lot of entertainment there in terms of all the sports that are covered during the Winter Olympics. So again, tune in if you can. With that, I would like to introduce our panel of gold medal investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealth, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic data, we've got three general updates for you and then a focus with four more updates on the employment and jobs market data. So on the general news, first we've got the government shutdown basically ended with about two days in lapsing in terms of getting the government back in order and also continuing some of the economic releases that were delayed a bit. Second, we continue to get Q4 earnings for companies in the S&P 500 and elsewhere, so we'll talk about that with Steve. And third, we've got the Institute for Supply Management readings on both the manufacturing side of the economy and the services side of the economy. On the services side, it has been an expansion for almost five years and continues to be so from the reading that came out in January, so that's good news. And on the other side of the economy, where there has been some dismal news in terms of the manufacturing, basically been in contraction for almost five years, January showed a sign of life where there was an expansionary month. So, we'll see if that continues here on the manufacturing side. Now let's move to a lot of data that we received this week related to the employment front, but we'll start with the first data piece that we did not receive, and that is the employment situation report from the Bureau of Labor Statistics, which was supposed to come out today at 8.30. Due to the few days of the government shutdown, that report will be delayed until Wednesday of next week, and that is an important number because it brings us the new non-farm payrolls and the unemployment rate. So, we'll continue to watch that next week. So now let's focus on the reports that we did receive. So first we received the JOLT (Job Openings and Labor Turnover Survey) report from the Bureau of Labor Statistics, which gives us new job openings, and that was a decrease down to 6.5 million job openings for the month of December, and that was about 400,000 lower than the November number. Second, the initial weekly unemployment claims report from the Department of Labor came out at 231,000, which was up mildly about 22,000 from the prior week, but continues to remain in a very stable corridor. And third, two other reporting agencies showed softening in the labor market with the Challenger Grand Christmas report came out at 100,000 private payroll cuts, And that may have been related to a couple large companies, but we'll continue to watch that. And secondarily, ADP came out with their private payrolls report, which showed only 22,000 new jobs were created in the month. So, net-net with all this data on the labor market does show some signs of softening, but more importantly, it is the consistency on what is being described as the low-to-hire and low-to-fire jobs market. So, let's turn to George to start our conversation today with some reaction to that economic data. George, I know you got a thought or two on that. And also maybe we'll move to some thoughts on the dollar debasement trade during our conversation. So George, give us some of your thoughts on the labor market.

George Mateyo [00:04:21]

Well, on the labor side, Brian, really quickly on the employment numbers, I think there's a lot of cross-currents, as you mentioned. The data still now has gone kind of back in the easy period of time, I guess, if you will, without a real clear read of the the situation, but I think it is kind of fair to say that there's probably three, at least three cross-currents that are impacting the employment situation. One, of course, has to do with AI, and it doesn't seem like that's having a big impact just yet, at least on the employment situation writ large. But I think at the margin, you're hearing some companies prolong hiring, maybe not hire as many workers, those type of things at the margin are probably attributable to AI to some extent. So you've got the AI effect, number one. Number two, many companies, frankly, over hired coming out of the COVID pandemic, and now they're maybe unwinding some of that. So that's another wrinkle. And then thirdly, you have this situation with respect to immigration and how that's altering the supply equation as relates to employment. So I think there's a lot of cross course there. The data you mentioned is decent data, but I think it's probably viewed mostly as sub quality relative to the other data series that we often look at. And I would guess, if our listeners are listening over the weekend, And they focus next week on the unemployment numbers that come out. If we see unemployment numbers, the rate itself rather pick up to say something like 4.7 or so percent. That'd be a pretty big jump in a month. But if it does get to that point, maybe that's the point of the level which the Fed would probably think about moving and maybe cutting rates, but we're not there quite yet. And the other thing I heard over just over the last few days or so is that many people think we probably won't get a really true read on the labor market until sometime like April or May, based on the backload of data that we still have in front of us. So I think it's fair to say that we're probably going to be muddling through a while longer in terms of the overall sentiment around the labor market, the strength of the labor market, and what that really means for the economy. The other thing that's been creeping into the investment narrative of the macro level, in a way, has to do with this notion of dollar debasement. If you look at the standard definition of debasement, it usually refers to something being reduced in value to the point of almost being rendered useless. I think that's the definition I saw. I think that's probably a bridge too far to talk about what's happened with the US dollar. I think it is fair to say that the dollar has been declining. We've been talking about that for some time, but it's not really being debased. It's not going to be replaced by another currency as the world reserve currency anytime soon, in my view. We just don't have an alternative, frankly. I think it's true at the margin that people are right to be concerned about maybe the relative decline of the dollar, but frankly, other countries are seeing interest rates go up. Interest rates here at home have been stable to slightly down. I think that just alone suggests that maybe the dollar on a relative basis is somewhat less attractive and less valued relative to others, but it doesn't mean it's going to be debased. What we've been arguing for quite some time is that we want to see probably people embrace diversification again, That probably means, as we've talked about now for the past year or so plus, it means holding international equities, international fixed income, where appropriate, to diversify your portfolio to have some currency benefit if the dollar does continue to decline. So I think that's really the kind of key takeaway for me as it relates to both the labor market and also this notion on dollar debasement. We can get into it more later if you like to, Brian. But I think the other thing that's being debased right now, Steve, has to do with software. And in the last couple of days, people are arguing that maybe we've seen AI disrupt kind of from within. And what I mean by that is we've seen companies in the software industry move from the disruptor to now being the disrupted, if you will. And I'd love to get your take on what's happened in the software sector in the last couple of days.

Steve Hoedt [00:08:00]

Yeah, George, I would compare it to the Deepseek moment a little over a year ago now. And, you know, I think that obviously the theme of AI disruption is deepening. I think people have varied on the areas that they thought were going to be disrupted. And I don't think people had thought that technology was going to end up disrupting technology stocks, but that's exactly what has happened this week. And software has clearly suffered some hammer blows. The event that was the proximate cause of it, there's a privately held company called Anthropic, and they released a co-work tool this week within a short period of time, not so much this week, but they released a co-work tool for the legal industry. And essentially, what happened is a lot of market participants started to connect the dots and said that if they can do this for the legal industry, what industry can't they do this for? And you saw software stocks sell off, you saw financial data companies sell off, basically anything that could have one of these tools released for it, people were thinking that this was going to put serious pressure on their business models going forward. This is not something that's just been a US phenomenon. It's happening in Europe and Asia, too, across the board. So software stocks globally have gotten hit by this. We've seen a tremendous amount of volatility introduced into areas of the market that have up to this point not really experienced all that much. I mean, you would think software is just typically been the area to hide within technology. Yeah, semiconductors have been the cyclical area that's been crazy and all over the map, people have hidden in software. And right now that kind of whole narrative has been flipped on its head because the semiconductor companies are the key enablers for AI and the software companies are the ones being disrupted by it. So there's a whole kind of disconnect between the way that investors who came up in this business, similar to you and me, George, many years ago, Like the way that we've been trained to think about seeing the world with these stocks, that's not really in play anymore. And I think a lot of people are having a hard time understanding what to do. And really, the question that I have is, are we getting to a point where we're capitulating in the software names? If you go back and you look at the highs for these stocks, the highs for these stocks were back in September. Now, that would make it seem like we've had a multi-month period of... massive underperformance, but really the stocks were only down, say, five to 10% coming into the year. And what we've seen is we've seen a total of $2 trillion worth of market cap erased since that September peak, with the bulk of that $2 trillion happening in 2026. And I think that's really what has gotten people's attention. Like there's a tremendous amount of wealth that's just been vaporized. by this and we're trying to come to grips with not only what does this mean, but we've said all along, there's going to be winners and losers in AI. And this was going to be the year that we were going to pick, the market was going to pick from winners and losers. I think the market was thinking it was going to pick between ecosystems. I don't think the market was thinking it was going to take an entire classification of stocks and throw them under the bus. But that's exactly what's happened, because you can't look at a software chart and not see it going down to the right right now. And the bid has been just relentless for selling. There's nobody willing to step in and buy.

George Mateyo [00:12:08]

I think you're right. Well, first of all, I think you've kind of nicely called me old, but I'll just take that as a compliment since you said we've been around and seen—

Steve Hoedt [00:12:16]

George, we're the same age, so I'm not calling so I’m not call you old!

George Mateyo [00:12:19]

Fair enough. Fair enough, but fair enough. But I think there are some parallels to what happened 25 or so years ago when we had the dot-com bubble inflate. And when I remember that of that period of time, well, a couple of things, but one of which is the fact that usually you start to see earnings for these companies they don't really fall apart right away. And that's I think where people are having problems understanding what's going on. Typically, the stock prices move first, as they typically do, and then earnings start to catch up later. And you need to see earnings trough, I think, at least the abbreviations trough out a little bit before you actually start to see a real credible bottom. You're right to point out also, I think, Steve, there's probably a lot of babies being thrown out with bathwater, I guess, to use the metaphor, in the sense that software is a very diverse group of companies, and it's not really one monolithic type of category or industry. And I think there's a lot of differentiation, as you pointed out, that needs to be sorted through. And the other thing that we kind of talked about, too, and we've written about this, I think, for a while now, is that people probably should be diversified beyond just that MAG7, the core of companies that really dominates the market cap indices that you mentioned. And so we've seen some broadening out, and I think that's going to probably continue to play out. I don't know if you agree with that, but I think that's one thing that I would say is a tangible takeaway.

Steve Hoedt [00:13:33]

George, what we've really seen, the tangible takeaway for me with this is that the market has been gravitating to stuff. And by that, I mean companies that have manufacturing facilities and companies that have mines and refineries and this kind of stuff. And those stocks have outperformed year to date and they've outperformed pretty markedly relative to the tech stocks during this kind of conflagration period that we've been going through. And the reason for that is simple. When you're dealing in this virtual world that's being disrupted by AI, nobody really knows what's going to happen three years from now. But you, you surely do know that we're going to need oil that's coming out of a refinery or, um, stuff that's coming out of plant XYZ. And I think that it's a simpler call for investors to rotate capital to, for lack of a better word, hard industries in this kind of environment, because we understand those businesses and we understand the need for them. Whereas the tech stuff, it's anybody's guess what the world's going to look like three to five years from now.

George Mateyo [00:14:43]

Yeah, and I think probably a safer bet, if you will, is thinking instead of the companies that are going to be changing the world, maybe think about the companies that can actually benefit from the change of the world. So that actually has been kind of another idea, another theme of ours, is that maybe it's the enablers that have been beneficiaries for the past few years. Now we start to see the adopters of AI over time. That could be cyclicals, as you talked about, that could be other industrial companies, maybe financials, healthcare, other things beyond technology that could actually benefit from AI. So the other thing I think, Rajeev, to kind of get you to this conversation too, is that one thing we talked about when we had our call last September on this theme of AI, we talked about some differentiators as well. We talked about specifically that maybe companies inside the private credit universe might be adversely disrupted by this. And I'd be curious to get your take, if you look broadly, Rajeev, at the overall credit markets, how are they processing this disruption that's happening in software, and maybe overall, if you look at the credit universe as a whole?

Rajeev Sharma [00:15:40]

Well, it's a very good question, George, because we've been talking about how credit spreads have been very well behaved. Certain pockets within investment grade and high-yield credit have outperformed consistently, almost to the point where we're questioning complacency in the market. But if you try to see the impact of just this week on credit spreads, and if we think about the public markets first, investment grade spreads, they widened this week. We did see some widening. We saw about three basis points of widening. So very well contained at these extremely tight levels that we're currently trading at. And this is the investment grade market after January, that's $200 billion in new issue supply. So if you look at the investment grade market, I think to the point of diversification within sectors. I think certain sectors have outperformed tech and the investment grade side. And these have been sectors that are your more brick and mortar type sectors. Industrials, they've done extremely well. They've gotten tighter. Communications have done well as well. But then if you try to peel the onion a little bit, you go into the high yield market and how that performed this week, it was interesting to see that spreads moved about 17 to 20 basis points wider on the week. And that was a function of the risk-off sentiment that was in the market that we have been seeing. But if you want to look at year-to-date performance, and let's think of the riskiest side of the markets, and let's start with the CCC rated bonds, they have outperformed all other U.S. debt categories so far this year. So year-to-date, CCC rated bonds are up over 1% for the year so far. And that shows that there remains These concerns about defaults for CCCs, they haven't really materialized as far as investor sentiment goes, at least not yet. If you think about the private markets, I think there's going to be certain pockets of the private markets that are going to be impacted now, because I do think that investors are discerning exactly what they're trying to buy here. What exactly is the underlying collateral of what they're buying? What are these names that are part of the private credit market that were not able to come to the public market to raise that, but they had to do it privately. So I do think that you're going to start seeing some kind of impacts There as well, especially certain sectors within private credit, are going to be impacted. If we look at the fixed income markets in general and how they did this week, the yield curve this week digested a lot of information, mixed labor reports, ongoing uncertainty about the Fed's next moves. Specifically, we did see the two-year Treasury yield move lower by about 10 basis points. So, there was this run to safety haven. We did see the two-year around 3.48% by the end of the week. The 10-year treasury note yield moved lower by 7 basis points to 4.20. So again, we saw as yields started to creep above 4.25% on the 10-year, investors do step in and buy in. And that pattern has been going on since September. We do see that the market continues to pay really close attention to the labor market. And to your point, George, they're looking for signs of sustained cooling. And we're not there yet because some of the data has been stale. due to the government shutdown. So I do think that, to your point, April and May probably is a time when we get some really good, fresh look at data. That's going to really shape the future of rate cuts. But the Fed is not the only game in town. We did see the European Central Bank and Bank of England both hold their rates steady this week. The ECB held its deposit rate at 2% for the fifth straight meeting. And it has a lot to do with the fact that they feel that the inflation is close to their 2% target. And then policymakers at that point couldn't really justify making a move with inflation and growth expectations where they are. If you look at the Bank of England, they also kept their rates unchanged, and they're sticking to this gradual easing path after the previous cut that they had. They're signaling a gradual downward path in rates. And so both central banks, much like the Fed, are in this wait-and-see mode, and none of the central banks really want to risk a policy error. There's been some other news in the market that has affected the fixed income markets as well. We did see that The Fed member composition is always on everyone's mind. What is the eventual Fed makeup going to look like? Steve Miran resigned from his White House Council of Economic Advisors role, but can legally remain Fed governor until a successor is appointed. That is standard practice. What it does do is it keeps Miran on the Fed board. And as we all know, he's been a really strong advocate for aggressive rate cuts. So, his presence does have some influence. Kevin Warsh, as we also know, has been nominated to replace current Fed Chair Powell, so he won't be aiming for Miran's spot. So, he's pretty comfortable in that chair position if he gets it. Who will take Miran's spot eventually? It's most likely going to be someone aligned with President Trump and one that pushes for faster and deeper rate cuts. But I don't think there's any really rush to get somebody nominated at this point for that role. There's enough other noise in the market right now that the Fed and the White House need to work on.

Brian Pietrangelo [00:20:27]

Rajeev, I read a narrative that they might put Walsh in Miran's spot to get him on the board first before he becomes chair. Do you think that's possible or unlikely?

Rajeev Sharma [00:20:37]

I read that as well, Brian. I don't think that's likely. I think they're going to really focus on Kevin Walsh being... that person to replace Fed Chair Powell, I don't think they would want to kind of start to play optics here with that. So, I think they have a bunch of other things that they're trying to be concerned about. Their number one goal is to get Kevin Warsh appointed. And I think they're going to just continue to focus on that. They don't want to ruffle feathers of any other Fed members or Fed governors out.

Brian Pietrangelo [00:21:02]

Great summary. Thank you, George, Rajeev, and Steve. But before we close, let's get your Super Bowl picks, folks. Who do you like? Steve, we'll start with you.

Steve Hoedt [00:21:14]

I got to go with the Seahawks. I mean, you got the former Spartan at running back for them. How can you go wrong?

Brian Pietrangelo [00:21:25]

There you go. Rajeev.

Rajeev Sharma [00:21:28]

I go for the commercials, but no, I really don't have a horse in the game. But I do think if we think about both teams, I think the Seahawks really are pretty stacked. I think they could run away with this game pretty quickly if they start taking an aggressive start at the beginning.

Brian Pietrangelo [00:21:41]

And you, George?

George Mateyo [00:21:44]

Gee, I'd like to be contrarian and take the Patriots, but I have a hard time running against the Seahawks too. I've got a, excuse me, I've got a sister-in-law out in the Pacific Northwest, so I'm going to go Seahawks 3117. What about you, Brian? What's your pick?

Brian Pietrangelo [00:22:00]

I do not have a pick, George, either West Coast or East Coast. The only affiliation for those of us here in Ohio is Mike Vrabel, the coach of the Patriots, as he did play at Ohio State and coached there as well. But that's the only affiliation I have. Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:22:48]

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA.

Non-Deposit products are:

NOT FDIC INSURED • NOT BANK GUARANTEED • MAY LOSE VALUE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY

January 30, 2026

Brian Pietrangelo [00:00:00]

Cindy Honcharenko [00:03:06]

So the Federal Reserve held the federal funds rate unchanged to 3.5 percent to 3.75 percent. This decision reflects a pause after prior easing, but not a signal of imminent cuts to come. The vote was not unanimous, with Governors Stephen Miran and Christopher Waller dissenting in favor of a 25 basis point cut. Notable changes in the statement were that the committee softened the labor market language and acknowledged signs of stabilization. There were references to downside risks to employment, and those were toned down. Inflation language remained cautious and still described as somewhat elevated. But the overall tone shifted from watching for weakness to waiting for confirmation, reinforcing a pause rather than a pivot. Moving to the press conference, Chair Powell reiterated that the current policy stance is appropriately positioned after earlier cuts. He also noted that there's no preset path for rates. Decisions will follow incoming economic data. Inflation is cooling, but remains above target and labor markets are more balanced. And that the Fed remains independent and focused on its dual mandate. So what are the likelihood of rate cuts in 2026? Right now, the markets are pricing fewer cuts with low odds in early 2026. It's looking more like midyear, June or later is the possible, the earliest plausible window. Expectations center on one to two cuts at most, but not a full easing cycle. And with Fed Chair Powell on his way out as chairman, it's a very low likelihood of additional cuts while he remains chair, which is through May, 2026. Powell did emphasize patience and data dependence despite internal dissents. And any further easing, like I said, will likely happen in 2026, potentially under new chair. Kevin Warsh. George, Rajeev, look forward to hearing what your take is from the FOMC meeting and Kevin Warsh's appointment announcement today.

George Mateyo [00:05:30]

So, Cindy, I don't know if the FOMC meeting that took place this week is the least relevant meeting of all time, but it sure seems like it's already kind of old news. Your description was amazing, as always. I do think it's important to recognize before we leave that point, though, that The Fed did seem to suggest rather that the overall economic story is still solid, the overall growth is still pretty healthy, so the economy by their lights are still pretty good. The labor market, I think they upgraded, but I'm not sure if that's a little premature in the sense that just I think a few hours after the Fed talked about the labor market being on solid ground, we saw a couple of big announcements from some corporates that suggested layoffs might be rising. We'll have to pay attention to that, as always, where the labor market continues to be probably the linchpin for what happens next with the Fed. But I think turning maybe to Warsh, I think it is fair to say that he's a dove today, and every person that comes into that role usually is a dove when they first assume the chair, meaning that rates probably in the near term are still biased to the downside. But we still have to keep in mind, again, that the overall committee is the one that makes the decision. So in other words, it's not going to be one person's decision with respect to interest rates overall. he's been a Fed critic in the past too, which is kind of interesting. And I guess we have to kind of take him in his word for that. Although if I'm being honest, I'm not sure exactly what he means when he talks about overhauling the leadership and kind of redoing the Fed. That has a lot of implications that probably deserves a longer conversation, but I'm not exactly quite sure what that might look like. But in the near term, I think he is probably more supportive of lower rates. We'll see how that plays out as we get through the rest of this year and in the next year if inflation stays a little bit buoyant. He's been one that talks a lot about deregulation, which would probably be another theme of the presidents that we also talked about as being a positive for the economy. And I think the third thing I would probably have our listeners recognize is that usually when somebody takes over this role, markets tend to react. It's kind of interesting to see that just in the short term today, of course, we're starting to see the stock market weak at the margin, bond prices are also weaker a little bit. But more importantly, I think what I've observed in my history of watching markets is that usually there's some type of accident that happens. And it's not because of the Fed, but it usually tests the Fed new chair when he or she usually takes over. And we've seen that with Greenspan, we saw that with Bernanke, we saw that with Yellen. It's interesting to see how the market, within about a year's time or so, maybe sometimes less, sometimes tests the new Fed chair. And I'm not predicting that this time, but I think we have to be open to the possibility that at some point we might actually again see the Fed chair being tested. And we'll have to see what that means for Warsh. I mean, he's been around the seat for a while. He was, of course, at the Fed. when Bernanke took over in 2006, I believe. So I think we have this moment in time that, again, maybe a year from now, we're thinking back about this. Maybe we won't, but I think it is interesting to put that into context in terms of what happens when the Fed share transitions in the past as it's done. So that's my take. Rajeev, over to you. Any thoughts you want to add or anything else you're observing in the bond market?

Rajeev Sharma [00:08:33]

Well, I think these are all really, really good points that Cindy and you, George, have made. Couple of things. I thought it was interesting. I know that the Fed statement that came out, nobody really expected a rate cut at this January FOMC meeting. But I thought it was interesting that the Fed acknowledged that unemployment is normalizing. They removed that language that Cindy talked about, downside risk to unemployment that had elevated. They removed that language. They also acknowledge that inflation is somewhat elevated beyond their 2% goal, but the statement itself kind of cooled down some of the heat on both sides of the Fed's dual mandate. It was also interesting to see the dissents. There were less dissents at this meeting than there were at the December FOMC meeting. Cindy mentioned Steve Miran was one of them. He was calling for 25 basis points of rate cut at this meeting, the January FOMC meeting. But the last time at the December meeting, he was calling for 50 basis points of rate cuts. Temperature cooled down with this statement. If you look at the current makeup of the Fed, you would still need four more voting members to vote for a rate cut. So that's gonna be a challenge. So what that does do is knowing that you would still need four more people to vote for a rate cut, that takes March off the table as well. So everybody's now expecting March to not have a rate cut. It re-emphasizes the mid-year being the first rate cut that we may see. Odds right now are favoring June or July as being maybe the first rate cut for 2026. And if you think about the Fed meeting this week, to me, it felt more like the Fed was mark-to-marketing their statement. The market had not really moved too much right after the statement was released. The immediate market reaction was pretty muted. And I think that's a very good thing, actually. It's good that the market did not react and expect that we're gonna get aggressive rate cuts or expect that March is on the table. The market is pretty pleased with the way the statement read. The market also didn't get any real big surprises from the press conference either. Now, as far as Kevin Warsh goes, former Fed governor, for a long time considered an inflation-fighting hawk. But now, more recently, he's pretty aligned with President Trump on having more aggressive rate cuts. And what the nomination signals is further questions about central bank independence. And it does open the door for policy risks. Policy risk has often been cited as one of the key risks for 2026 and beyond. And I do think that this does open that door further for policy risks with easier monetary policy. Even if Kevin Warsh was considered a hawk before, that's what they consider him now. The markets were already concerned about higher political risk premia, less predictable policy. This also opens the door for preemptive rate cuts. So the initial market reaction that we've seen, as you mentioned, George, hasn't been significant today, but we did see some more steepening of the Treasury curve. So investors are anticipating looser policy going forward. So we do see the front end, which is most influenced by central bank policy, monetary policy. We do see front end yields dropping slightly. And we see longer-term yields being pretty anchored where they are. Overall, though, it's very important for everyone to know that Warsh is going to have to forge some kind of consensus amongst Fed governors. Several of those governors are still aligned with the data dependency house-style monetary policy. So data dependency doesn't go out the window yet. This could probably lead to more dissent than we've seen in the past and less predictable forward guidance.

Brian Pietrangelo [00:12:00]

In addition to that, Rajeev, everyone's going to talk about the Warsh appointment, but let's not forget Stephen Miran's appointment was temporary and ends tomorrow. So let's figure out if he's going to get reappointed, which I think he probably would. And that is also the balance of the Fed governorship. Any comments?

Rajeev Sharma [00:12:16]

Yes, I do think that's a very interesting point, Brian, because I do think I also agree that I think he's going to be reappointed. He made his narrative pretty clear throughout his time. to his limited time that he's had so far with his voting capability. He's often asked for aggressive rate cuts, 50 base point jumbo rate cuts. I do think that that does influence, if he's reappointed, that you will have that one more voting member that's going to push for aggressive rate cuts, and maybe even those preemptive rate cuts that we haven't seen in the past.

Brian Pietrangelo [00:12:47]

Yeah, he's that low dot on the dot plot, self-admitted, so we know who he is. So thanks, Rajeev, Steve, and George, or Rajeev, Cindy, and George, a great update on all that content. Now let's turn to Steve and get his thoughts on the stock market this week. We've got a couple of big tech earnings and some other activity, including some AI news. Steve, what's on your mind?

Steve Hoedt [00:13:05]

Yeah, you know, Brian, the tech earnings came in good enough, and we continue to see the forward earnings line for the S&P 500 head up and to the right. And you know, that's Kind of in our mantra, you've heard us repeat on these calls over and over and over again, which is as long as the earnings number continues to go up into the right, it's difficult to get very bearish on the stock market, no matter what's going on in terms of the news flow from the Fed or out of DC or whatever. So, it's been good from that perspective. There definitely is some bifurcation, though, that's happening in the mega-cap tech earnings. And you saw that with the market responding favorably to what Meta talked about with their spending plans and seeming to be able to monetize some AI, while Microsoft, on the other hand, didn't spend enough for the market. And the market participants started to question what's going on there. I mean, then Apple had good numbers out last night. So, we're off to a pretty good start with the mega cap numbers that came out this week. We get the balance of them X Nvidia next week. So we'll have to see how it goes. But so far, so good. And I think that was really kind of the bar. People have to understand that the bar was pretty high coming in this quarter and the numbers are coming in at a level that exceeds that high bar. So good good Q4 numbers. When you think about where the market sits today, this week has been a week of churning. We've continued to churn below the all-time high levels that we made a couple of weeks ago. Don't see anything really nefarious going on under the hood, irrespective of the bouncing around that we're having today in response to the Fed news. I think most market participants have come to this idea that no matter how hawkish the Fed stuff is talked about, the Fed chair is always a dove when push comes to shove. So, I think it was also interesting to hear George reference the challenges that every Fed chair since Greenspan has had. And I think he's being charitable about them maybe not causing it, because I think if you go back and you look at some of the stuff that caused the market gyration, shall we say, it was oftentimes confusing messages that came out of those Fed chairs. So, it'll be interesting to see if we get the same kind of stuff this time, but that plays right into our... our 2026 outlook, Brian, where we talked about how it was going to be a solid first half of the year. And then once you get into the second-half of the year with the new Fed chair, kind of all bets are off. And I think that that's still kind of the scenario that we see in front of us here, where you've got this run hot economy that looks like we're on a pretty solid glide plane for half one and half two with a new Fed chair. Who knows what we're going to get?

Brian Pietrangelo [00:16:09]

Great reminder for our listeners, Steve. Thanks for that, especially on the outlook. George, any final comments for our audience today?

George Mateyo [00:16:18]

Well, there's a lot to chew on there. We covered a lot of ground in the last 15 or so minutes, Brian. So thanks, Cindy, Rajeev, and Steve for all your great insights. I guess I would just echo what Steve said too, where I think you wouldn't be surprised to see some continued churn, some continued volatility. We still think that it makes sense to be basically neutral towards your risk positioning, meaning overall, we're not advocating for getting too far on the risk curve, but we do think there's opportunities inside the market too. And Steve talked about the fact that we've seen, frankly, a little bit of discernment amongst the AI trade. That's one thing we've also signaled in our outlook, where we don't think that it's going to be a rising tide lifts all boats. And we're also seeing the broadening of the market take over as well, meaning that there's going to be more participation beyond just seven stocks that dominate the headlines. And we're starting to see that kind of play out in our portfolios. And so the third thing, Brian, I'm close with, I think as this market continues to maybe churn a little bit to Steve's term, I think quality is going to be an enduring theme. Quality is one of those factors, frankly, that didn't do so well last year. We saw a lot of the low-quality companies rise to the top that really kind of drove some certain market segments of the market. But I think more discernment is going to be a good thing for the market, and more quality participation in the market would be good too. So I would stick with quality, and I would also continue to bet in human ingenuity as a long-term benefit to portfolios and the economy as well.

Brian Pietrangelo [00:17:35]

Well, thank you for the conversation today. George, Steve, Rajeev, and Cindy, we appreciate your perspectives. And as one additional reminder for everybody, please take a look at key.com/wealthinsights for our 2026 Economic and Market Outlook written document that gives you our perspective on what we think is going to happen during the year. It's quite robust and will give you a lot of insight. So if you haven't taken a look at that, please take a look at that as well. It'll be very informative for you. Well, thanks to our listeners for joining us today, and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with them next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:18:32]

We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA. The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates. This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any federal or state government agency.

January 23, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, January 23rd, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We start today's podcast with a congratulations last Monday to the Indiana Hoosiers for the championship of the College Football Playoff series here in 2026. What A remarkable story for Coach Cignetti and all the players for winning that championship and running the table with an undefeated season. What a great, great story. And second, a little bit less known, today is actually National Handwriting Day. So that seems to be a lost art given the digitization that we all live in on a daily basis, but it might be worth writing a handwritten note to a friend, colleague, or a family member. Last year, I had the opportunity to receive a gift of one of the famous Mont Blanc pens, and I gotta tell you, it's really, really cool. So if you have an opportunity to do some handwriting, again, take advantage of it. With that, I would like to introduce our panel of investing experts here to share their insights on this week market activity and more. And on a regular basis, they put pen to paper to put their thoughts on the markets and the economy in writing as we do verbally here in the podcast. So welcome Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic news, we've got four key updates for you on the economic front and three other updates on the markets. First up, we've got the weekly initial unemployment claims, which remain very stable, so no reason to give you an update because it's pretty good. On the second side, we've got the update for the gross domestic product for the third quarter of 2025. And the number came in at 4.4% with the updated estimate, which was up 1/10 of a percent from the initial estimate that came out. And again, some of these numbers are delayed due to the government shutdown that occurred last year, but nonetheless, pretty good news. The results reflect increases in consumer spending, also some government spending, as well as investments. And third, overall inflation as measured by the Personal Consumptions Expenditures Index, or known as PCE, came in fairly stable for the months of October and November with a two-month catch-up, and in general, it stayed the same, but it's still persistent. On a year-over-year basis, PCE expenditures were 2.8%, and excluding food and energy, it was also 2.8%. Now, this is important because PCE inflation is the Federal Reserve's preferred measure as looking at inflation in terms of trying to get to their target of 2%, which leads us to the 4th update, which is that the Federal Open Market Committee meeting is next week, and we'll continue to watch that for exciting news. Now, in market and other news, we've got 3 updates. We have no update from the Supreme Court on President Trump's IEPA, or International Emergency Economic Powers Act, ruling yet. It has been estimated that there will be a ruling soon, but it might take some more time. Second, we also have the Supreme Court hearing from Governor Cook in terms of the Federal Reserve and the implications of her job in terms of overall stability regarding Trump's accusations around impropriety. The original tone of the hearing seemed to favor Governor Cook, and so we'll give you more information as that continues to come out in the newswires. And last, we've got updates from Steve on Q4 earnings and how we're going this far in the quarter, so we will start there. Steve, let's hear your thoughts on what's happening in the market and specifically your thoughts on Q4 earnings season. Steve?

Steven Hoedt [00:04:14]

Brian, when we look at earnings starting this week, earnings season kicking off in earnest, and for the S&P 500, we saw yet another climb higher in the index aggregate earnings as the companies that have reported have largely at least met enough expectations to have gotten fairly decent reaction out of the market. And we've seen the earnings line climb for the S&P up to $314, continuing to move up into the right. What we've said for quite a while is that we thought that this quarter's expectations were low enough that companies would be able to come in and do pretty well, and that's what we see so far. Now, clearly we're only about 15 to 20% of the way through earnings season. We've got the big companies coming in the next two weeks. So we'll have a little bit better read as we go through the next couple of weeks, how things are going to settle out. But as we sit today, right now, the bank earnings came in good across the board pretty much. And that was a really good sign for the market. So, nothing on the earnings front that looks like it's going to get in the way and derail derail what's happening on the price side is in terms of is move as in terms of moving higher. Um, you know, when you look at the S&P 500 for the week, um, essentially if you were to go on vacation this week and just not come back, you would look at it and go, oh, what happened this week? The market didn't go anywhere. Uh, we're because we're basically at the same place we were last Friday. Um, but that, that doesn't really encapsulate the story. Um, with kind of the Greenland reaction on Monday and giving us the opportunity to see the market when it opened on Tuesday, gap down. We basically spent the whole week recovering from that as things kind of backed off and came off the boil there. So, I think what we said from a price action perspective on Tuesday morning still holds, and that is that the market is near that 50-day moving average, which is up until the right sloping. Most of the pullbacks during the bull market phase that we've been in since April have been shallow and have been contained by the 50-day, and that we thought that this was no different this time in terms of being able to just kind of pull back and reset things. Now, we'd like to see the market move and make a new three-month high yet again, which right now is sitting at 69.86. The market today is at 69.20. So we need to get up close to 7,000 to start to see the market reassert itself to the upside. But what we see here right now, there's nothing nefarious in this price action at all. It kind of smells to us like the market is marking time while we get the earnings numbers out that we talked about at the top of the call. And if earnings come out the way that we think, we should see this market resolve itself to the upside. Now, underneath the hood, there's been a lot of stuff going on. Breadth has been good. which means we've seen a broadening out in the market beyond the MAG 7. But importantly, we've seen sector rotation and we've seen, as the MAG 7 names have come off, we've seen the 493, for lack of a better word, go up into the right and make new highs. But even more so under the hood from that, if you were to go in and look at technology stocks, for example, tech stocks peaked in October, they've been kind of weak. in as a group since October. Healthcare, on the other hand, has been going up into the right since last July. So there's been a clear rotation under the hood of this market toward kind of what I would call quality growth and away from, you know, a tech levered AI high growth kind of stuff that that stuff has come off the boil a little bit. And from our perspective, that's been a very healthy thing for this market because you've seen the this broadening out and participation. But the caveat to that is with 40% of the S&P 500's market cap tied up in those mega cap names, if those names are not rip-roaring off into the sunset, it creates a difficult environment for the index to make a lot of headway to the upside. So we believe that this is an environment that's really ripe for stock picking, for active management in particular, because you can come down and you can play in some of these 493 names. that seem to be garnering some positive momentum relative to the market cap leaders that have kind of dominated trading since we came out of the pandemic, at least. So we think that this is a really intriguing market right now, Brian, as we get through here into the third week of January.

Brian Pietrangelo [00:09:29]

Great summary, Steve. And we talked about going on vacation this week and coming back and seeing nothing, but the VIX did pop up a little bit. And I would ask your opinion that it's really more due to some news and noise that we hear rather than some really market underlying fear.

Steve Hoedt [00:09:42]

That's correct. You know, the VIX had gotten down to levels that were very, very low. You know, when you're down in that 14 area, it gets to be It doesn't take much to make it move, let's put it that way. So when you've got kind of this surprise reaction to the Greenland stuff over the weekend, it was not a great shock to see volatility pop on the open on Tuesday. We don't see it, though, as being anything nefarious. It's a normal reaction to the market. It would take a significant shock higher in volatility to derail the good things right now. And we just don't see, at least right now, anything that would do that. Thank you, Steve.

Brian Pietrangelo [00:10:33]

Now let's turn to Rajeev to talk a little bit about the bond market leading off with the PCE inflation report that we got this week and what it may or may not mean anything for the Fed meeting next week. Rajeev?

Rajeev Sharma [00:10:44]

Well, Brian, yeah, you're absolutely right. We did see that PCE data that did come out this week. The market took it for what it was. It was stale information. Even if the headline number was slightly better than consensus in some areas, what it did do is validate the Fed's rate cut decisions that they made last year. The PCE data on its own really didn't do much to signal any future amount of rate cuts or how deep we go with the rate cuts. But there were some highlights that did stand out, one being that this was the fourth time in a row that monthly core inflation is at or below the low 0.2%. That's a pace that's consistent with the Fed's 2% target. But again, the data is stale. And it's impacted by the government shutdown. So it doesn't really bring enough to change or clarify the inflation picture for the Fed or for the markets, for that matter. Now, yields this week across the Treasury curve, they moved quite a bit in respect to some of the points that Steve made. There was quite a bit of movement on the Treasury curve. And most of that movement happened after President Trump said he doesn't plan to use force to acquire Greenland. In fact, if you graph the intraday timeline of those comments, we would see the 10-year treasury note yield immediately fall about two basis points as the market heard, quote unquote, no military action. We also saw the curve re-steepen. So the differential between a two-year treasury note and a 10-year treasury note hit its narrowest level in four years. It's just about over 60 basis points. So the markets are back on focusing on other things now outside of Greenland. The market's back to focusing on earnings, growth and Fed policy. Now we do have a Fed meeting next week and the odds of a rate cut at that meeting are pretty much zero. The market has already been aligned with that. The market's not expecting any rate cuts to the midpoint of 2026. Traders appear a bit split on the timing of when that first rate cut will come in 2026. They are weighing between the June FOMC meeting and the July FOMC meeting and up to a couple of weeks ago, And right after the December FOMC meeting, I think the market was pretty much squarely focused on the June FOMC meeting being that meeting where we get our first rate cut. But those have kind of shifted towards July now. And that has a lot to do with the mixed data that's pointing to a lower unemployment rate and maybe a slight moderation in inflation. Now, you add to that questions about the independence of the Fed, these market expectations are likely to shift. As soon as we start getting more comments from Supreme Court justices that indicate whether they would rule in favor of Fed Governor Lisa Cook or the US government, early indications do point towards the fact that they're leaning towards Lisa Cook. So that, again, brings the question about Fed independence. And not only that, we have to contend with the fact that everybody knows Fed Chair Powell's term ends in May. There's a lot of headline news out there, who could be the next Fed Chair. And I think that we've heard about four or five contenders that are in that list. I think when we started this whole process, there are almost 11 people that could have been considered for the role. Now we've kind of narrowed down to a short list of about four to five contenders. Those include Michelle Bowman, Chris Waller, Kevin Warsh, and Rick Rieder. Trump told reporters that he expects to name a successor soon. And we also heard from Secretary Scott Bessent that said the president may decide as soon as next week. So the markets are closely watching this. Meanwhile, I mean, we haven't seen much on credit spreads. I mean, you know, Steve talked about the big drop that we saw right after the news hit the airwaves on Monday. And I believe beginning part of the week, we saw such a big drop in the S&P 500. If you try to map that against credit spreads, they hardly budged. Credit spreads have continually been in this extremely tight holding pattern that's even in the face of record amount of new issuance that we're seeing for the month of January. Credit spreads are just not wavering. The demand is so great for investment-grade corporate bonds that spreads remain tight to the point where many people are wondering if this is complacency that's set into the market. But there has to be some kind of catalyst for spreads to go wider, and Greenland was not that catalyst. Great, Rajeev. And let's go back to the Fed chair replacement. If you're a regular listener on this podcast, you know that has changed significantly in the last few weeks where Kevin Hassett used to be a leading candidate. What are your thoughts on why he's not anymore? You know, I think Trump really likes the role that Kevin Hassett is in right now. And he made the comments that he'd like to keep him in that role. And I think that really took away him from all the Polymarket and Kalshi websites out there. He was the front runner. And he actually came out, pretty much said that he'd be happy doing what he does right now. So, I really do think that that took him out of the running. He's not on those websites anymore. They're trying to make those odds. But I think it does come down to a pretty nice tight match right now of who it could be. A lot of eyes are on Kevin Warsh, and that's most likely the front runner at this point. It'll be interesting to see how that plays out, but it's going to be a name that's probably going to announce sooner rather than later.

Brian Pietrangelo [00:15:59]

Great. Thanks, Rajeev. And for our last segment of the podcast today, we're going to do a little bit of round robin between Steve and Rajeev, focusing on some of the Trump policies. Now, we all know that there's policies that are talked about. Some get implemented, some don't get implemented, and that's okay. But our job is to try and figure out what the implications, if some of the policies were to be implemented, what would it mean for the stock market, the bond market, and the economy? So let's start off with this limit on the credit card rates for 10%. What do you think that might mean for some of the banks, Steve? And then on your side, Rajeev, what does it mean for the markets?

Steve Hoedt [00:16:35]

So it wouldn't be good for the banks. Let's put it that way. It would be a mess to implement. Now, at the same time, you have seen a couple of large banks talk about rolling out products with a 10% interest rate limit on it, which is interesting to me. because it shows that they're trying to do something that the administration would view favorably in order not to have to have the wholesale change. So, you know, it seems to me that we are going to get something that pushes in that direction, but it's going to be more like on product innovation than it is going to be a wholesale change. Because at the end of the day, it takes an act of Congress to change the maximum or minimum rate that could be set on a credit card. And to be honest, there's been enough lobbying done that that's not likely going to happen anytime soon in Congress. So, it'll be something to watch. But from our chair, we don't see it as having a huge impact, at least near term.

Rajeev Sharma [00:17:49]

Yeah, and I would add that It's very interesting. And to Steve's point, the bank lobbying groups out there, I think they're going to definitely try their best not to let something like this happen. But if we do play this out, I think for the fixed income markets, the big impact on that 10% cap would be the $70 billion credit card ABS sector. We could see spread widening there. You could see reduced issuance of credit card ABS. I guess bank funding costs would drift higher as well. And If you look specifically within the fixed income corporate bond universe, I think there'd be wider spreads between subordinate and senior debt for banks. And that could be something very interesting to see because that spread has actually narrowed quite a bit over the last several years. Any widening of that would signal something there. So I think what we'd have to keep in charge. So far, right, we haven't seen too much widening on the news or the headlines, but sub-senior subordinate and senior debt would definitely widen out.

Steve Hoedt [00:18:50]

I mean, the market doesn't think anything's going to happen, I don't think. But the thing that I caution, and Brian, maybe it goes to the broader point on this, is that the administration, when they put out this stuff, it oftentimes sounds crazy and people don't think that anything's going to happen, but it's been kind of amazing to watch how... At the margin, at least, a lot of the stuff that they talk about, there is stuff that ends up getting done, no matter how quote unquote crazy it sounds when things come out in the first place. So I was skeptical originally when we heard about this, but I wouldn't doubt that at some point something happened.

Rajeev Sharma [00:19:34]

Yeah, and to that point, Scott Bessent came out this week and said the bank shouldn't be too worried because they're already going to get the benefit of the deregulation.

Steve Hoedt [00:19:41]

Yeah.

Brian Pietrangelo [00:19:43]

Very interesting. Very interesting. Our number two topic for today, Fannie and Freddie buying 200 million in mortgage backed bonds due to Trump's instructions. Is this actually happening, Rajeev? And what does it mean in the bond market? And then afterwards, Steve, what do you think it will mean? Does it actually prop up home buying?

Rajeev Sharma [00:20:03]

So what this really does, Brian, I think that, you know, puts downward pressure on mortgage rates. In the bond market, it's actually being viewed as a quantitative easing shock, and it would be one of the largest non-Fed interventions if it went through in the MBS market, mortgage-backed security market. So you're talking about a non-Fed intervention causing an artificial demand spike. And of course, it raises the questions about GSE independence. This is a very interesting thing that's being posed out there. It's also very interesting of what the impact it would be on homebuyers. Would it limit homebuyers in any way or limit how homebuyers look at this market? Rates start to come down because of this. I think that would be very interesting. But right now, I think it would-- the number one direct impact would be downward pressure on mortgage rates.

Brian Pietrangelo [00:20:59]

Just a quick program note before Steve gives his answer. My apologies for giving acronyms, but FANI is the Federal National Mortgage Association, and FREDI is the Federal Home Loan Mortgage Corporation. So these are GSEs or government sponsored enterprises that are pseudo government entities that help in the mortgage market. So, Steve, with that backdrop, as an education, just what are your thoughts on house demand and supply from this?

Steve Hoedt [00:21:22]

So I think it's hard to see exactly what the impact is going to be. It should be a little bit positive at the margin if mortgage rates do come down as a result of this. You know, that's been one of the things that the administration has been trying to do is to get some kind of movement into the home market, because I think that there has been a bit of stapest as we've had mortgage rates kind of stuck around levels that have been a lot higher than what they've been over the last 10 years. At the same time for us, it really does though come down to the signaling about the economy. And the fact, this is another way to kind of play that deregulation angle. At the end of the day, they're going to pull as many levers as possible to do as much as they can in order to make the economy run hot. And that is a bullish setup for both the economy running hot at, say, what, 5% GDP to throw a number out. And then that that translates directly through the earnings, which pushes stock prices higher. So from our perspective, this is a really strong backdrop for stocks and for the economy should be that should flow through the house prices, too, Brian, at the end of the day. And I think if people are if people have jobs because of this or whatever, it it'll push, push, continue to push things up to the right.

Brian Pietrangelo [00:22:56]

Great. And Steve, why don't you finish the third topic with your comments here on the podcast on housing with President Trump's insinuation of tapping and having no institutional buyers purchasing homes and leaving it to regular homeowners. What are your thoughts on that? And that'll conclude the podcast.

Steve Hoedt [00:23:13]

Yeah, they've had, there have been institutional buying in the home market that has reduced supply. whether it's private equity firms that have gotten involved in the space or a couple publicly traded REITs that have gotten fairly large. I would tell you that at the margin, we don't think that the impact on the market has been all that huge from this, but there has been some. You can't say there's been none. And I think the signaling is very important that, again, they're going to try to do things to help regular people as opposed to setting up the system to benefit these corporate entities or private equity. And at the margin, that's a populist message that the administration ran on. And I think that when they say things like this, you need to take them at their word and they'll likely follow through on it. So, I think that there's, there will definitely be impacts. Exactly what they're going to be, I don't know, but I think we're going to have to watch it because when they say something, you take them at their word. And I think that there will be some kind of action on this, Brian.

Brian Pietrangelo [00:24:29]

Well, thank you for the conversation today, Steve and Rajeev. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:25:02]

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.

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