Brian Pietrangelo [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, December 12th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. And before we begin today's conversation, we would like to wish everybody out there a happy holiday season for every religion and especially a Merry Christmas as we get into the December holidays. Also, a program note due to those holidays and some scheduling opportunities, this will be our last podcast of 2025.So we want to make sure we wish everybody a great holiday season. With that, I would like to introduce our panel of 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, Rajeev Sharma, Head of Fixed Income, and Cindy Honcharenko, Director of Fixed Income Portfolio Management. As a reminder, a lot of great content is available on key.com/wealth insights, including updates from our Wealth Institute on many different subjects, and especially our outlook for 2026 as we just posted it, and take a look to see what we have to say about the upcoming year. 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, the economic release schedule on the calendar was fairly light this week as we continue to have various delays due to the lapse in information gathering from the government shutdown a few months ago. As an example, on a delayed basis, we will not get the all-important employment situation from the Bureau of Labor Statistics for the months of October and November until next week on the 16th.We're also still waiting for the first estimate of the third quarter 2025 GDP report, and that won't come out until the 23rd of December. So let's turn to data that we do have. And this week we came out with the unemployment claims on an initial basis from the Department of Labor for the week ending December 6, and the number was 236,000, which was an increase of 44,000 from the prior week, which looks pretty big. However, let's diagnose the numbers. The week ending November 29th, the prior week, was the week of Thanksgiving, so the claims are going to be lower due to that fact that there was the Thanksgiving holiday. So if we go back to the week ending November 22nd, when the numbers were 217,000, this week's increase only really is about 19,000 on an increase, which doesn't sound as bad, but we'll continue to watch those numbers on behalf of our read on the economy. But net numbers are still pretty low, which is a favorable sign. And second, we got the job openings report through the JOLTS report, as it is known from the Bureau of Labor Statistics, where we got two months in one, and that came out earlier this week for the months of September and October, still delayed from the government shutdown. And we did see a little bit of an increase from August in those numbers for September and October at around 7.7 million job openings. So fairly stable there, not too much change in the news, but generally an increase is possibly systematic for the seasonal updates or it's just a decent read. Either way, we'll continue to watch that number going into the new year. And third and most importantly, the big news for the week was the Federal Open Market Committee for the Fed that occurred on this past Wednesday with the press release and the decision to lower rates. Now, this is the third consecutive meeting that the Fed has lowered rates for a total of three times this year in 2025, but the meeting had a lot of more content to it and a lot of deeper discussion that we will cover during today's podcast. So, as it is very important, we'll get right to Cindy Honcharenko to give us a recap of the FOMC meeting and the implications for the markets and the economy. Cindy?

Cindy Honcharenko [4:02]

The committee cut the federal funds rate by 25 basis points, bringing the target range to three and a half to three and three quarter percent. This marks another step in the Fed's gradual easing cycle as inflation continues to move lower and the labor market cools. But the real story isn't the cut itself. It was the three dissents behind it. Two officials thought the Fed shouldn't cut at all, and one argued the Fed should cut even more. And that kind of split is rare, especially on the rate-lowering decision. So let's unpack it. Austan Goolsbee and Jeffrey Schmid dissented because they preferred to hold rates steady. Their concern is that inflation progress, while real, may not be durable enough to justify easing at this stage. They worry about cutting too soon and risking re-acceleration in prices. On the other side was Stephen Myron, who dissented for the opposite reason. He actually wanted a larger 50 basis point cut. He argued that the labor market has cooled significantly and that inflation is steadily drifting toward target, so a faster adjustment was appropriate. 

Taken together, these three dissents mark the most fractured vote we've seen in years, and they tell us something important. The Fed's no longer aligned on how restrictive policy still needs to be and the center of gravity inside the committee is widening and that will shape the policy debate into 2026. So what did the Fed say? The Fed acknowledged continued disinflation, noting inflation was eased over the past year, even if the progress has been a little uneven. Policymakers also said the labor market has shifted from hot to balanced, with job growth moderating and wage pressures cooling. They described policy as restrictive, but less so than earlier in the year. And now they see the risk to inflation and employment as more evenly balanced. We also got a new economic projections. The SEP and the dot plot shows the Fed expects only one rate cut in 2026. That's a slower, shallower easing path than markets anticipated. The committee also announced a restart of the U.S. Treasury purchases to modestly expand the balance sheet. Importantly, policymakers frame this as performing a technical reserve management adjustment. It's about maintaining ample reserves as the balance sheet runoff tightened conditions in the money markets. What did Powell say? Well, he struck a thoughtful but cautious tone. He said that the committee felt a modest adjustment was appropriate given the combination of easing inflation and cooling labor market. He emphasized that the Fed is not declaring a victory on inflation, that there's more work to do, and they need to see continued progress before moving more decisively. He also addressed the usual pattern of dissent, describing them as genuine differences in interpreting the data. He portrayed the committee as unified in goals, but wrestling with timing and magnitude, which is exactly what you would expect at this late stage of the disinflation process. As far as the balance sheet, he was extremely clear. This is about ensuring adequate reserves, not about stimulating the economy. And when asked about the single 2026 rate cut in the dot plot, he stressed that it's not a commitment. Future policy will depend on the data, especially inflation's path and how the labor market evolves. So, what does this all mean for next year? Now, the Fed's baseline is just one rate cut in 2026. Additional cuts are possible, but they will require either cleaner disinflation or a more noticeable slowdown in employment. The split vote underscores the uncertainty, the officials disagreeing on both sides, some worries about inflation, others concerned about growth. The path of rates in 2026 is far from settled. So, markets should expect higher policy volatility, more debate inside the committee, and a very data-dependent Fed. Rajeev and George, I'd love to hear your take on this week's FOMC meeting and announcement.

George Mateyo [08:18]

Well, Cindy, first and foremost, happy anniversary. I'm not going to say what year it is, but happy anniversary to you. And thanks for all your great years of service here with us at Key Private Bank and Key Wealth.

Cindy Honcharenko [8:28]

Thank you very much.

George Mateyo [08:30]

You're very welcome. I'm going to look back and say the Dow was probably, I don't know, maybe a few thousand points lower maybe. But anyway, we won't go down that path. But nonetheless, thank you and congratulations and happy anniversary.

Cindy Honcharenko [8:42]

Thank you.

George Mateyo [08:42]

In terms of the Fed, though, I guess we should pretty much say happy anniversary to Jay Powell soon, too. I think his term is coming up to an end sometime relatively soon. And this could, in fact, be his last rate cut ever, maybe. I think there's a strong likelihood that they might not cut rates again as his term is chair anyway. And of course, he could stay on his governor for a few more years, but it seems like we kind of have this thought that maybe there'll be a new chair sometime in the spring of next year. And as you suggested, maybe the Fed will be on hold until then, or maybe even longer, potentially. But I think the overall tenure was a pretty growthy outlook in the sense that they did lift their growth forecast in their projections. And I would probably say they're probably being a bit too cautious on the inflation side, where maybe there's some chance that maybe inflation runs a little bit hotter than what they're thinking if those gross numbers come to fruition. And frankly, the division is probably not a bad thing either. It’s probably a clear example to the administration that this is not just one person that can control what happens with interest rates, which, of course, is what some people might like, but I think it might be more complicated than that to actually achieve. So if nothing else, the Fed probably fades into the background a little bit as we shift the discussion to other things in the first half of this year, including the AI trade that we've talked a lot about and other things as well. But I think we'll probably have to, of course, navigate the uncertainty which comes with the new Fed share. I mean, that announcement could, of course, come any day. I guess, Rajeev, if you're looking at the overall appetite for risk markets, it seems like credit spreads continue to be well contained and pretty well behaved. We have seen some yields kind of pop up other parts of the world, though. I’m not sure if you want to comment on either one of those two things, but that would probably be something to pay attention to, in my view, in terms of the appetite for risk and also what's happening overseas. What do you make of that?

Rajeev Sharma[10:26]

Well, it's a very good point, George. The overall sentiment after the Fed was that yields are reflecting the fact that maybe we don't get the three rate cuts that the market anticipated for next year. And so the market is right now at a 25% odds of a rate cut in January, at the January 28th meeting, which is quite significantly lower than what the market was thinking before the Fed meeting. If you look at credit spreads, they've been very, very contained. We had a lot of supply this week before the Fed. Market digested that, and...investment grade and high-yield spreads are both pretty much where they started the week at these almost a few basis points away from multi-decade tights that we saw in September. So credit spreads haven't really reflected the fact that we've had so much supply this year. And I think that it's very interesting that so much demand continues to be for credit. Especially investment grid credit, very high quality credit that you're getting very good yields at. And it's an income play, really, for the market right now. And I think that's going to continue into next year. I do think that the market is anticipating maybe two or three rate cuts next year. I think the credit markets are also anticipating that. If we don't get those, then I do think that high yield could come under some pressure, especially the lower rated bonds that have to go back into the market to refinance their existing debt. And that's going to be tough on some of those triple-C rated bonds out there. And that's going to be something very important to monitor.

Brian Pietrangelo [11:57]

You know, George, you've said many times that it's not as important as to when or if the Fed is cutting rates, but more important as to why the Fed is cutting rates, whether it's part of the dual mandate on inflation coming down or jobs market suffering. I was a little surprised that I haven't really heard Jay Powell talk about the fact that he thinks some of the jobs data may be overstated and therefore weaker than expected. Do you have any thoughts on that?

George Mateyo [12:21]

I don't, Brian. I mean, I think we all kind of acknowledge that the data is a little bit fuzzy in general, and it's probably even fuzzier given the government shutdown essentially negated some data. In other words, there are some surveys and some data that just wasn't collected because of the shutdown, and it probably won't ever be collected. And we're still getting data that actually was, you know, a few months delayed. So I think that might be some out of it. But I don't think there's anything untoward in the sense that the data is bad data. So in other words, we have to catch up from this period of the shutdown and get behind us. And then maybe sometime next year, we can restart the clock and getting things a bit more on a clear footing. But I do think it is true to say that what you pointed out with respect to it doesn't matter if they're cutting as to why they're cutting. And I think what we've suggested is that these rate cuts for the last several months anyway, have been more focused on just preserving and maintaining economic growth as opposed to try and restart it. And that's a key difference in the sense that sometimes when the Fed is cutting rates, they're doing so because the economy is contracting, frankly, and they've got to find a way to kind of resurrect growth. And we don't seem to have that right now. But Steve, maybe to get you into the conversation, one thing that's also apparent right now is that the US dollar has been under some pressure. And I don't know if you've got any views on that, but I think that's another tell we have to watch in terms of what the overall market sentiment might be with respect to risk. So any thoughts on the dollar, Steve?

Stephen Hoedt [13:44]

I mean, I think, George, it's one of those kind of wild cards as we head into 2026.If you look at it historically, large moves that happen very fast in the currency markets are the thing you need to be afraid of. If you get slower adjustments on a quarterly, half yearly, whatever basis, corporations are able to hedge out whatever the impact is, and it doesn't really have too much of a positive or negative impact on earnings for corporate America. When you get fast moves, though, those are not hedgeable and it can create impact. Lately, obviously, we've seen a dollar have about of weakness. We’ve seen commodities across the board, again, start to reflect that. Commodities are priced in dollars, so when the dollar goes down, commodity prices go up. The one exception to that has been oil for a host of reasons, but basically all metals and base metals have had a great last couple of months. The other question is, as we go into next year, are we going to see acceleration in this? I think that our point of view is that the dollar has migrated to a lower trading range, but that we don't see some kind of imminent collapse. And basically, you're going to see it move around here and using the dollar index as a kind of a proxy. There was a period of time where the dollar was well above 100 over the last few years. And lately, I think the view is from our shop that 95, 96 to 100 is probably the new trading range that's going to be established. We don't see some kind of imminent collapse to like 80, which would cause, again, problems for corporate America in terms of hedging.

George Mateyo [15:45]

Steve, I think we should probably get your thoughts on AI, right? I mean, that's one thing that many corporations are talking about. There was an interesting survey that came out just a few weeks ago that suggested those companies that actually talk about AI have seen their stock price actually outperform those companies that don't talk about AI. But at the same time, the market seems to be rotating a little bit away from that in terms of some of the recent underperformance by some of these major tech stocks. Do you have any thoughts on what's happening inside the market on the AI theme? 

Stephen Hoedt [16:15]

It's been an interesting week there too, George, with two big news reports from companies involved in the AI ecosystem. You had Oracle earlier this week and Broadcom last night, both of which are, maybe they're not in the MAG7, but...But they're certainly mega-cap tech, right? So when we think about it, if you look at the Oracle news, the market was a little bit surprised by the magnitude of investment that Oracle stated that it was going to continue to make. I think that the feeling is that we're getting to a point with this where the market is discerning some winners and losers, the OpenAI, Oracle, NVIDIA ecosystem has been kind of on the outs lately, and the Google, Broadcom, Celestica ecosystem has been on the rise. And the fact that Oracle was talking the numbers that they were, I think the market was a little bit taken aback by it again. Then when Broadcom comes out last night, though, and Broadcom kind of threw some cold water on people's expectations for the Google Broadcom ecosystem, because they again talked about, they refused actually to really give guidance on how much we could see in terms of sales over the next 18 months they've got lead times of 6 to 12 months. So the fact that they're not willing to give guidance out to 18 kind of made the market go, right? So we've got that stock down today, a similar amount that Oracle was down yesterday. So both ecosystems took a hit this week. I think that the message for me on this is that as we head into 2026, I really do think it's not so much a AI trade as it is a differentiation of the potential winners and losers in AI, number one. And that could be the AI stocks and companies themselves. But more importantly, I think it's the companies that are going to be able to figure out how to leverage this technology to increase productivity. And that's a...a very clear thing that we're starting to see, but I don't really think we've seen the labor market impact in the economy yet. Maybe we start to see that dig in a little bit next year. I think it's still to be determined.

Brian Pietrangelo [18:41]

You know, Steve, we were talking earlier this morning with George and everybody on the team about maybe a flashback to the 1990s and a comment that you wanted to make as we go into the end of the year. What are your thoughts on that?

Stephen Hoedt [18:52]

Yeah, it wasn't lost on me that this week. Cisco Systems reached a new all-time high. And the last time it had an all-time high was in March of 2000. And at that point, I think I mentioned it to George a little earlier this morning, that the earnings forecasts necessary to justify the valuation exceeded 5% of GDP for the US economy at the time. I mean, the scale of the bubble back then was just mind-boggling. And, you know, I think it's kind of brought into focus again. You know, there's a lot of talk about bubbles right now. It feels like there are things that are similar to '99 to 2000, 2001, but there's also a lot of stuff that's very different. So, you know, I think it gives us pause though to think that it took almost 25 years to get to a place where we have that stock at new highs. And the thing that I would like to highlight for everybody is, look, Cisco has been a real company with real earnings and real products and all that for the last 25 years. But yet, because the valuation got so overcooked, you could not make money as an investor in that stock until the last few years, as we've seen things kind of improve there and grind its way higher to a new all-time high. So I'm sure there are some folks who are doing cartwheels because they can finally unload the stock they bought at the peak for a measly gain after 25 years, Brian.

Brian Pietrangelo [00:20:38]

Well, thanks, Steve. That's a great segue to go back to George to finish up our year. As we get towards the end of the year, George, any great reminders for our investors and our listeners out there on topics of concentration and diversification and valuation?

George Mateyo [00:20:51]

Shun, shun, shun, right? A lot of things there, concentration, valuation, and so forth. I think, well, look, I think, first of all, I wish everybody a great holiday. Take some time to relax and just be with family and friends and turn off the TV for a while. Markets will still be there when we come back. And it could be a little choppy next few weeks or so as liquidity dries up and other things maybe take center stage. But I do think that we are still really bullish on the long-term outlook of our economy, big believers of human ingenuity. And I think irrespective of political noise and other things like that will be better off for it.

But I do take your point, Brian, very seriously as well to the point, which is being diversified. And as we've said many times on the last few calls and for much of the podcast this year, we've talked about the fact that the market has gotten pretty concentrated, which suggests that there's probably been this dominance of one theme kind of taking over the market. And we think it is important to diversify and having some exposure there, but being measured in your exposure, knowing what you own, knowing why you own it, and really trying to make sure your portfolio is diversified as possible, knowing that we just don't know what's going to happen next.

So we wish everybody a great holiday season, a happy, healthy new year, and we look forward to turning sometime in early January with you on this podcast. So thanks for listening. Happy holidays.

Brian Pietrangelo [00:22:09]

Well, thank you for the conversation today, George, Steve, Rajeev, and Cindy; we appreciate your insights. And as we said earlier, this is the last podcast for 2025. So on behalf of our Chief Investment Office here at Key Wealth, as well as our colleagues across the nation at KeyBank, we would like to wish you a very happy holiday season and a very Merry Christmas. 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 in the new year to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:23:01]

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.

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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, December 5th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. We'd like to welcome you back. After a Thanksgiving break last week, we were off for the podcast, and I assume that you were able to spend time with family and friends like we were. So again, glad to have you back with us this week. In addition, as a program note, earlier this week on Wednesday, December 3rd, we had our national client call where we talked about our 2026 outlook for the economy and the markets. So if you're interested in hearing the recording and seeing the deck from that call, please reach out to your financial advisor or relationship manager to get the links for that information. We'll also be giving a recap for that in our podcast today during our final session. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer. Stephen Hoedt, Head of Equities, and Rajeev Sharma had a fixed income. As a reminder, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series, which addresses 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 you in terms of the economic releases for the past week and some commentary on that, and we will begin with that here shortly. First up, we have data on the employment market and the labor market, beginning first with the initial unemployment claims report that came out on Thursday. The initial claims for November 29th week ending were 191,000, which was significantly below the average that we have been seeing for some time now and may be related somewhat to seasonal hiring, which again reduces the initial unemployment claims that have been filed. That also being the case, it's been below 225,000 for the last three weeks of reporting, so we'll continue to take this as favorable news as this data point within the employment market. On the other hand, we were supposed to get the employment situation report for November here on Friday, the 5th of December, that covered November's data, but it was delayed and continues to be delayed from the government shutdown and will not be published until December 16th. As a result, we'd look at some alternate data that we don't normally cover and try to get a read on whether that has implications for the employment situation report that would be delayed. And one of those reports is the ADP National Private Payroll Report, which showed that there was a loss or decline of 32,000 jobs in the private sector for the month of November. And second, this week we got both sides of the Institute for Supply and Management's PMI reports, one manufacturing and one services. On the manufacturing side, their report continues to show contraction in the manufacturing side of the economy, not only for the 9th consecutive months, but rolling on to roughly a five-year period where the manufacturing industry has been in contraction. However, opposite from that, on the services side of the economy, it has been expanding in the month of November and has basically also been an expansion for about 5 years. So a completely different side of the economy, and we'll continue to look at that data to report it for you. And third, we're getting information real time on PCE inflation for the month of September. It's coming out right as we're recording this podcast here on Friday morning. So we'll talk about that within our sections of the podcast. But that being the case, remember, PCE, or personal consumption expenditures inflation, is the preferred measure for the Fed. Now, that being said, given the government shutdown that we had, this information is also delayed, so we'll only be getting the PCE inflation number for the month of September, which means it's a little bit stale, but it's still very important because it's the last official read before we go into the Federal Open Market Committee meeting next week. And speaking of the Fed, as our last comment, they will meet on Tuesday and Wednesday of next week for the last meeting of 2025. And we'll talk with Rajeev and the team about the implications of the data for that meeting and where we're headed as the probabilities of a rate cut are pretty high, and then talk to Rajeev and the team as to where we might be going for 2026. In addition, during our last segment, we will talk about a recap of our 2026 outlook. So George, let's begin with you to talk a little bit about what that inflation report might be, also some of the implications of the employment data, even though it's not complete. George?

George Mateyo [00:05:05]

Well, Brian, I'm not sure if we can make too much of the data that came out this week in the sense that it was kind of noisy. And more specifically, the claims numbers that you referenced. Well, I think we kind of like to look at claims because it's a good flat point in terms of really some near-term economic data, and it comes out on a weekly basis, or it used to anyway. But this number was pretty low, as you mentioned. It almost seems like artificially low. I don't know if that was because of the fact that took place during the Thanksgiving holiday. And sometimes, obviously, people aren't probably out in the streets looking for work during Thanksgiving, hopefully. And that might kind of skew some of the data on the downside. The other data that you talked a little bit about, of course, has to do with ADP and employment. In the past, there, too, many people didn't really use that indicator very much. They kind of thought there was some sampling issues that probably we won't get into right now. But again, the overall numbers suggest the overall trend is, again, a cooling labor market, but not collapsing. And just a general sense that the labor market is in okay shape right now. And that's probably good enough by all accounts. I think the market probably took it to heart that the Fed might not be pausing after all, because the numbers were a little bit soft. But we still have to navigate probably this malaise we're in with respect to the fact that data has been pretty opaque. The other signal that just came out this morning, of course, is the inflation numbers, which again suggests that inflation is still kind of sticky, but not spiraling out of control again. So again, we have this ongoing narrative with respect to cooling labor conditions and sticky but not rising inflation. So I think overall, it kind of is an interesting setup for the Fed to kind of chew on this. At the same time, their own leadership transition is still kind of swirling around in the ether that we have to kind of understand a little bit. So I don't think there's going to be too much new news that we have to uncover. The Fed probably still seems somewhat divided, although in the more recent days, it seems like they've kind of coalesced around what they might do. But again, there's probably a little bit of doubt in terms of what they will do for sure. I don't know, Rajeev, if you've any thoughts on that, but it seems to me that the Fed is still kind of operating somewhat blindly with respect to academic data. And maybe a pause makes some sense, but the market is suggesting they should still cut. What do you think?

Rajeev Sharma [00:07:14]

Well, George, today's PCE release is the last piece of data that the Fed is going to get before the FOMC meeting next week. We did see recent labor data that's also quite bifurcated, in my opinion. ADP showed private payroll decline in November.  That was the sharpest decline since we've seen since March 2023. So then that fueled some of those easing bets from the market that the Fed is going to cut rates next week. While we had the weekly jobless claims, they fell to a three-year low, suggesting that the Fed could actually wait and see approach, continue with the wait and see approach. So a lot of noises out there with this data. Next week's FOMC meeting currently has a 95% probability that we will have a 25 basis point rate cut. It's being framed more as a risk management rather than a pivot towards aggressive easing. But the thing to watch really will be the number of dissents that we see when we find out the dot plots next week, find out exactly who wanted to vote for a rate cut, who said that we should pause. I think it's going to be very important for the future in 2026 of how deep rate cuts go in 2026.And I think that's going to be very important. But again, I think that you're seeing in the treasury market right now, there is some dip buying. You do have investors out there that are looking at bond yields. They're seeing them at one or two basis points higher across the curve. Tens are visiting their defined range of 4.05 to 4.15%. We've been in that range since the last October FOMC meeting. And you have seen investors come out there and say, okay, 4.15% on the tenure, I'm going to buy.

And we're seeing that.

And Friday is probably the day where I think a lot of investors are going to make some of those decisions before the Fed meeting. The FOMC meeting decision next week. I think that whatever data we've seen so far as far as economic data, many have viewed that as old data, stale data. Once this is all out of the way, which we've got today with the PC number, I think we're going to have to focus more on the Fed meeting.162 We also have other things to focus on. We have auctions. They resume on Monday. $58 billion of a three-year new issues coming to the market.

$39 billion of a 10-year and $22 billion of a 30-year are coming Tuesday and Thursday. So the only day that we don't have an auction next week is Wednesday, which is the Fed meeting, and Friday, which is because it's Friday. So I do think that there's a lot of other moving parts in there that might keep some of the pressure higher and keep yields elevated in the Treasury curve. But really all eyes are on the Fed for next week.

Brian Pietrangelo [00:09:47]

Well, Steve and George and Rajeev, we've all had a great opportunity this past week, which is a good segue to think about 2026 now that we get past the Fed meeting next week. And we had a national client call where we talked about our outlook for 2026 and had a couple of key themes that we want to share with everybody today as a recap for that call on Wednesday, 12-3. So George, let's start with you. We've got our top six for 2026. And the first question in the recap is, do you think the economic momentum will continue and will a recession be avoided in 2026?

George Mateyo [00:10:22]

Yes and no. I guess yes, I think the economic momentum can and will continue, Brian. And no, I think we will avoid, yes, we will avoid a recession. Trying to think the right way to say that.

But yes, I think a recession is probably not likely next year. There's always something that could go wrong. In fact, there's a lot of things that people are thinking will go right next year. So as you think about everybody else's putting out forecasts too, I think the outlook across the board is pretty bright. And we have to keep our eyes open to that because I think there's always things that can kind of go bump in the night if we're not aware of them. And one of which, of course, is inflation, which probably we'll probably talk about that in a little bit, I would guess. But overall, I think the economic momentum continues. News in the next year.

Brian Pietrangelo [00:11:01]

Great, number 2 for George and possibly for Steve, is the artificial intelligence status in a bubble? And if so, do you think it will burst or is there something else going on?

George Mateyo [00:11:15]

Well, I think the expectations are certainly elevated, right? So maybe a bubble is not really the word I'd use right now. But instead, I think the overall expectations around what AI might do in terms of the overall, I get the infrastructure that's associated with it. And we've noted on some of these calls in other places too, that we are kind of shifting to a little bit more of a riskier phase in the sense that many companies now are relying on debt to finance that infrastructure. So I think the answer is probably not yet, but I think it really bears monitoring. Steve, what are your thoughts?

Stephen Hoedt [00:11:43]

Yeah, I think that we're similar, but a little bit nuanced on this between you and me, George, and that I think it's a little bit earlier in the cycle for this than you do. But I would say that when I think about bubbles, a bubble typically encompasses not just market participants, but society as a whole. And if you think back to the bubble in 99 and 2000, like you had sock puppet advertisements on television, you had kind of, It permeated everywhere in society. It started to become a cultural phenomenon as much as a market phenomenon. And I really don't think we're there yet with this AI business. It hasn't permeated everywhere yet. And frankly, there's a lot of skepticism on it. There's more skepticism on it from a consumer adoption standpoint today than there was a year ago. So I think we're entering a phase where, to your point, people are needing to be discerning. And it's very clear that there are ecosystems emerging in the AI world right now with one kind of coalescing around Google Gemini and another coalescing around OpenAI. And as we move through 2026, I mean, it's very possible that we could start to see winners and losers in the AI space as opposed to just everybody assuming everything AI is a winner. And that would be a very big change compared to what we've seen over the last two or three years, where basically anything that touched AI was up and to the right. I think that if we move into a world where there's discernment between winners and losers, that looks a lot different than what we've seen over the last couple of years. So maybe we don't have a bubble per se, but we get this kind of discernment between winners and losers.

And you get some very popular stocks that have some very public potential pullbacks or issues.

Brian Pietrangelo [00:13:53] Great. So moving on to #3, for you, Rajeev, what do you think is happening as we get past next week's meeting for the Fed in 2026? What do you think about the leadership changes at the Fed? What might it mean for interest rates in 2026? And what do you think the outlook is for the dual mandate of both inflation and employment?

Rajeev Sharma [00:14:13]

Well, you know, the outlook for Fed independence, that's going to be a key driver for 2026, key concern for 2026 from investors. There's political pressures. They continue to mount There will be some leadership transitions. There'll be some new appointments. And those new appointments will likely align with White House thinking of aggressive rate cuts. So there will be debates over the Fed's dual mandate, inflation versus maximum employment. This could all weaken the Fed's autonomy, but institutional guardrails remain strong. I think what's going to be very important is the Fed has to maintain its credibility. If the Fed starts looking that it's politically biased in one way, I think there's going to be a lot of concerns about the future of the Fed. And I really do think that, you know, we've seen some dovish signals by the Fed in 2025. We're going to start seeing more stronger dovish signals by the Fed in 2026. Potentially, that could lower Treasury yields. It could steepen the yield curve. Fed Chair Powell's term ends in May 2, 2026. President Trump is expected to nominate a successor. Right now, Kevin Hassett has the odds in his favor, over 80%.

Each year, you have four regional Fed presidents that rotate into the FOMC. So that could reduce the hawkish weight of the Fed and bring it into more of a dovish stance. The net effect would be a dovish majority. And especially if HACCP prioritize easing to counter slowing growth and mortgage stress, you could start seeing more of a dovish posture of the Fed. You could start seeing some things like, you know, we talked about the 2% inflation target. You could see those goalposts move. Perhaps the Fed would be comfortable with the 3% inflation. So the outlook of the Fed's dual mandate comes into question in 2026. I think policymakers are split between prioritizing price stability versus maximum employment.

Brian Pietrangelo [00:16:02]

Thanks, Rajeev. Back to you, Steve, for #4. What do you think about the stock market? Will we post our 4th consecutive year of gains and will the Magnificent Seven remain magnificent?

Stephen Hoedt [00:16:13]

So I would tell you that I think our outlook for next year is a pretty bullish one based on the macro backdrop that we see. The economy looks like it's in a pretty good place. You've got both monetary and fiscal support likely in a significant fashion in 2026, all of which should lead to earnings likely exceeding expectations in our view. And when you think about that backdrop, we also think that it's likely going to be very front loaded in 2026.And to the point that Rajeev made and that George alluded to earlier, you know, if the economy's running hot, there's a fine line between running hot and overheating. And if we get to a place where things are overheating and inflation is higher than what people expect as we run into mid-year and post the Fed chair shift, we could have a scenario where the market gets disappointed with how accommodative monetary policy is. So I think that when we came into 2025, we said it was a down and up year and we kind of got the the call right on that directionally. We think that next year likely is going to be an up and then question mark year, meaning that we could chop around after we have a really great first half of 2026 or depending on how the inflation scenario plays out, you know, you could see a pullback in the second-half of the year. But we think the first half of the year is pretty clearly set up to be a fairly bullish one for equity markets.

Brian Pietrangelo [00:17:55]

Superb. George, we'll finish with you with the final two thoughts for our top six for 2026. And we'll go with #5. Do you think 2026 will be the year that investors need to worry about the national debt and the deficit?

George Mateyo [00:18:12]

Well, to some extent, Brian, I think every year is a year that we have to worry about this because the debt situation is really probably not sustainable on a long-term basis. But at the same time, I don't want to be alarmist about it. We've had this situation. We've known this issue for quite some time. I don't think there's any one tipping point that might be coming down the pike. This is not as if something's going to be surprising us when this happens. But at the same time, these things happen somewhat out of the field when they do, when bondholders do say too much and we just don't know when the point might be. Right now, it doesn't seem to be an issue. It seems to be a situation where we know every debt situation, we know a lot of leverage, but at the same time, people still want to use dollars as a currency with which to transact. And we have a lot of great things going for us as a country, a lot of great things going for us as an economy, and that should continue to benefit us and allow us to actually use this privilege we have to issue debt. So I don't think it's an issue right now, but I think we just have to be mindful of it. And I think the best thing we can do is be diversified around that.

Brian Pietrangelo [00:19:11]

Great, George. And the final question is #6. What do you think about the midterm elections that we have coming up next year in 2026? Should investors get out or stay away from the markets until they pass?

George Mateyo [00:19:22]

Absolutely not. No, I think the elections, I think Steve has said this very well. And every two years, I think now, Steve, we seem to say this, which is the markets really don't seem to care about who wins, frankly. The markets just want clarity, right? And we'll have probably plenty of time to talk about this next year as we get closer to the elections. It's not surprising to see the party in power lose a few seats, and maybe the administration now loses the majority in one branch of Congress, mostly the House, where I think the leadership right now is very narrow. So that wouldn't surprise people, I don't think, and I don't think the markets would react too negatively towards that. And to Steve's point, maybe the administration wants to get ahead of that and also try to legislate certain policies or put forward certain policies anticipation of maybe a tougher legislative calendar in the back half of next year and into the next few years thereafter. So I don't think it's not going to be that problematic for the markets. We probably have some volatility to kind of chop through and there's always going to be something unexpected happens next year. So again, as I said a few minutes ago, Brian, I guess our best view is that diversification is probably the most inexpensive thing you can do to your portfolio and have the least actually impact in most markets, but certainly when markets get crazy and markets go through periods of volatility, being diversified usually is the best solution.

Brian Pietrangelo [00:20:39]

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.

Disclosures [00:21:16]

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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, November 21st, 2025. I'm Brian Pietrangelo and welcome to the podcast. And before we begin today's podcast, we certainly want to wish everybody a Happy Thanksgiving next week.

In fact, we will be off on the Friday after Thanksgiving to celebrate the holidays, so we won't have the podcast next week. We'll catch up with you in a couple of weeks. But again, wishing everybody a Happy Thanksgiving with friends and family. Also on the other side of the Thanksgiving week coming up on December 3rd, we are having our national client call with the Chief Investment Office here at Key Wealth to forecast our 2026 market and economic outlook. You should be receiving an invite if you are a client. If you're not a client, you want to reach out to somebody, a key or your relationship manager to get an invite, please do, so that you can sign up for the webcast. Again, it is on Wednesday, December 3rd at 1 p.m. Eastern Standard Time. I hope you can join us.

With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Stephen Hoedt, Head of equities, and Rajeev Sharma, Head a 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 which addresses 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 four key updates for you this morning. First, even though there continues to be a delay in a number of reports from the government shutdown, we're beginning to get some of the data. So first, outside of the government report, is the existing home sales produced by the National Association of Realtors. On a month over month basis, this number increased 1.2% in the month of October, which has been the highest since February and is at a 4.1 million annual rate. Now, this is the second month in a row where that has increased, so a little bit of movement here, unlocking some of the fragility in the overall housing market with regard to turnover and existing home sales activity. So good sign there in terms of two months.

And second, we have two updates on the labor market because some reports that had previously been delayed are now starting to come out. We'll begin with the initial unemployment claims report that comes out on a weekly basis, and most recent for the ending of the week on November 15th. That number came out at 220,000 initial claims. We also saw backdated reports for the two previous weeks, which hovered around 230,000. So the good news here, folks, is that even though we were in the dark for a while, those two reports show us that around 222 average of those last three weeks of initial unemployment claims is very favorable, because it shows that there is not an existing increase in the initial claims report. So good news there on that jobs report. In addition, the government came out Bureau of Labor Statistics with the employment situation report for the month of September, which have been delayed significantly. So we just got it yesterday, and it showed 119,000 new non-farm payrolls that were created in the month of September. The report also showed some revisions for July and August at 33,000 lower, but net net that average of 119,000 was well above expectations and estimates in the market. And we'll take it as a very positive surprise of the healthiness of the jobs market at least for now in this indicator. Now, the Bureau of Labor Statistics also talk that they will not publish the October report, which means this is the last new nonfarm payrolls report we will have before the December 10th Federal Open Market Committee meeting.

And number three, speaking of the Federal Open Market Committee meeting, we got the notes from the October 29th meeting and they called the minutes. So ultimately, it describes some of the dissension that was discussed in the press conference and talked about more so, differing opinions from the participants on the committee with regard to holding rates steady in December, or looking for rate cuts based on the fog in the data that is now starting to come out a little bit more clear and forth.

Finally, in the market, we had a number of very large companies report their earnings this week, which seemed to be favorable, but yet the market had a little bit of a negative reaction to it. So we'll get Steve's take on that to help us read through those tea leaves. And finally, as a special program later on in our podcast, we'll be have a conversation around how we did with our forecast for 2025 that we published at the end of 2024. Just like we're going to be doing with this now in our 2026 forecast here at the same time of the year. So, George, let's tee you up for the first part of the conversation with your reaction to a lot of this data and what's happening in the markets and the economy. George.

George Mateyo [00:05:26] Well, Brian, I think the overall takeaway from the economic numbers that came out this week is that, frankly, there were some contradictory, numbers. And also I think the numbers were pretty stale. So more specifically, I think the thing that the market really kind of paid most attention to, of course, was the, the jobs numbers that came out for September. So again, those are probably two months old now, and I'll talk more about that a second. But the numbers were kind of mixed, frankly.

I mean, I think we saw some indications that the overall employment situation was a bit better than expected, in the sense that roughly 120,000 jobs were created in the month of September. I think that's say, there might be the highest tally since April. So that's a nice recovery there. The the prior two months, however, saw their numbers revised downward. So those would be August July numbers. So again we're kind of going back a little bit further. At the same time, the unemployment rate as you mentioned actually moves higher, almost close to 4.5%, which would probably be noteworthy. Then I guess you can kind of parse that number. So that was a good number of that number. But I think most people are going to focus on the fact that that number is still rising. So what that means is that the market is kind of appreciated.

We also saw wages come a bit soft as well. That's really good news for the inflation story. I think wages now are kind of running at about a 3.8 or so percent clip on a year over year basis, which is kind of kind of a comfort zone for the Fed. Not too hot, not too cold. I think they'd probably prefer to be a little bit softer. But, you know, America split here on that one. And I think you also just kind of know where they go. And if you think about the job numbers, the three month average now is ten. Moved up a little bit. Which is probably good news as well.

I think if you also kind of think about the numbers going forward, however, you know, some of the numbers this, this path report again, this is going back for September data, but, but the prior report suggested that most of the gains came in the private sector, which is pretty typical. But then note the note. I bring that to your attention in the sense that I think the government data, it's going to probably be a bit softer.

Many people are kind of bracing themselves for a pretty weak report when the actual October numbers come out, sometime. And I think it's going to be sometime after the Fed meets. So again, the Fed is meeting in kind of the first part of December, I think it's, December 9th and 10^th, and then at the same time, that employment report that I just mentioned will come up for a week or so after that. So, again, we're kind of in a situation where the numbers are still, things are confusing. And overall, I think things are still a little bit foggy in terms of what they might mean for the overall economy.

So let's, maybe let's shift gears a little bit. I think the bigger story in terms of this week has to do with what happened in the stock market and the stock market. Call this news in kind of a, kind of interesting fashion, I guess you could say a lot of volatility in the equity market. What do you take away from this week when you can think about earnings? And we think, what if the set up for the rest of the year is.

Stephen Hoedt [00:08:04] Well George, I mean it's I can't couch the price action in anything other than to say yesterday was probably one of the ugliest days that we've had since the turn of the decade. If you look at it, I mean technicians would look at what we had yesterday and call it an outside day, which mean we opened very high to the upside and then closed, very, very much on the downside. And it completely engulfed the days- the prior days’ range. The last time that we had an outside day, similar to what we saw yesterday in the Nasdaq according to, you know, sources that we trust was October of 2018.

So like it has been a really long time since we've seen that kind of reaction. And what was a bit shocking about it was that the numbers out of Nvidia were good enough. I mean, we got to open to the upside, but yet, we just continuously faded the entire day from that. So it kind of tells you that, the, the market, you know, we've talked for a while that things have been a little bit overcooked on the upside. And like, what could the market do in order to exceed expectations here? And even though Nvidia exceeded expectations, it clearly wasn't enough to keep the party going, at least for today.

Now, the positives from this are that when you look at the technology stocks in particular, we have gotten to areas that the market would consider oversold. So we should be getting close to an area where tech stocks are going to bounce. But if you look at the broader S&P 500, things like 20 day lows, like we like to see those spike above 50% in order to kind of give us an idea that the market is in a place where we're bottoming, and those are only around 25% as of last night.

So it seems like the broader market has a little bit more work to do here to try to find a low, and wouldn't surprise me if tech, did did. So first. I think a more interesting piece here too, is to put this in a little bit broader context. If you remember, we talked very much about the seasonal pattern that the market usually has where we have weak Septembers in October and then strong November and December.

It would not shock me at all right now, given how we had a strong counter seasonal in September and October, where we rallied strongly that we don't have the opposite happen in November and December this year, where we kind of back and fill and chop and make mark time between now and the end of the year. I don't know that we get a face ripping rally between now and the end of the year.

Like we would normally kind of see a Santa Claus rally, that kind of stuff. It feels to me like this market needs to do a little bit of digestion for the gains. Again, I don't see anything nefarious, unfolding here, but. And a pullback from here that goes down and say, tested the rolling 65 day low or even the 200 day moving average around 6300 would not at all surprise me, to be honest.

George Mateyo [00:11:08] Well, at the same time, Rajeev, you know, this confusion around the devaluation of AI stocks and the overall market sentiment. But he pointed to I think he's after colliding with what the Fed is kind of talking about. And the Fed is not talking. Well, you know, by voice, I mean, there's a lot of different people out there that are chattering, expressing different point of view.

And as we come into the, the meeting right after the holiday, Thanksgiving holiday, of course, you know, the Fed's going to meet and I'm not sure exactly what were the leaning, because we've got so many different opinions that are now being kind of penny back and forth. Are you going to sort through that maze, that fog in terms of Fed speak and what they might be thinking about when they come together in early December?

Rajeev Sharma [00:11:46] Yeah. So, George, I mean, the fixed income markets are they're really looking for any cues they can possibly get for whether we're going to get a pause in December at the December 10th FOMC meeting or whether the Fed will continue cutting rates. Generally, if you think about what the Fed has done in the past, generally they don't cut and pause or they don't hike and pause either.

But right now, this is a very different situation where we don't have the data and the Fed doesn't have the data to really make the decision. So we did have the release of the October FOMC minutes this week. And the market really, you know, got what they wanted in that meeting. Obviously they got the 25 basis point rate cut. But the minutes showed quite a bit of a divergence amongst Fed members. Many members in the minutes signaled caution. They were a little worried about continued easing. They pointed to towards, stubborn inflation, continued uncertainty around the labor markets. All in all, the committee approved the 25 basis point rate cut, but they were pretty split over the rationale of why have a rate cut.

And, when we had the, statement released in the October meeting, we only saw two dissenters, Miran and Schmidt, and they were on opposite sides of the poll. But if you read the minutes, you really see a lot more dissension. I think a lot of policymakers have been arguing that we shouldn't have any more further rate cuts, because we don't have the data to support it. Meanwhile, you have other members that, feel that, you know, we have to continue cutting rates. And then the economy, if the economy evolves as expected, then it should be, you know, we should be cutting rates. So now the expectations for a December rate cut, have fell pretty dramatically since the October FMC meeting.

When we finished the October FMC meeting, we had 22 basis points of easing priced in. Everybody thought that we're going to get the December rate cut. And, just this week we had about maybe nine basis points of, rate cut expectations for the December meeting. So basically, the market was pointing towards a pause. Then we got the stale data that you mentioned about the payroll information, and it really didn't move the needle at all because as you mentioned, George: stale data is not enough to go by. But I want to point out how quickly the market can react to a Fed member or a Fed speaker or anybody coming up with a narrative that contradicts where the market is expecting.

Today we saw Williams, Fed Member Williams come out and pretty much said that he sees a need for rate cuts in the near term. The labor market, he feels, is softening. And it feels that, rate cuts should happen. And immediately, based on those comments just this morning, those expectations of a rate cut in December went from 36% to 58%. So again, that's how volatile this market is. We've seen it in volatility indexes for the bond market that there's a lot of question marks right now of what the Fed's going to do in December.

And I think when you have the Fed narrative and the divergence that we've seen through the minutes, it's really coming down to a coin flip again. So there's going to be a lot of volatility going into that meeting. I do feel that the market is pretty much going to stay where they are as far as yields go as they approach that December 10th meeting. You're right to point out that we're not going to get the jobs data that we normally would have got before that, meaning that jobs data is going to come out on December 16th, a week later. So the question mark really is, does the Fed go ahead with blinders on again and do a rate cut, or do they feel that, let's wait for the data. And I think right now it's a coin flip.

Brian Pietrangelo [00:15:11] Certainly a great recap from the three of you for this week's activity and still remaining some of that uncertainty. So really glad to touch on it, Steve and Rajeev, in terms of that uncertainty and that volatility, as we give that guidance to some of our listeners to watch out for that volatility.

So we are here at this time of year again, which is special, not only because of Thanksgiving next week and the upcoming December holidays, but also this is a time of year when we craft our upcoming outlook for the new year, and we also take a look back and see how we did on our outlook for this year that we wrote in November of 2024.So, a great opportunity for us to have a little dialog in this special segment with all of you. And I'll start off by saying kudos to all three of you and the entire team within our chief investment office. In aggregate, we've got six out of eight calls that we made that we're pretty much spot on. So that's a pretty good track record in terms of the investment business. And we're happy that our clients benefit from some of these calls, if not all of them. So just to recap real quick on the macro-outlook. If you go back to what we wrote in November of 2024, George, you did a great job. Spot on. In looking at what presidential administration policies would be implemented in 2025 with regard to four key ones certainly tariffs, immigration, deregulation and tax policy. And what you wrote on page eight was pretty much spot on. So kudos there, George. Steve, on your side of the equation, your equity write up was talking about a really choppy and uncertain period in the first half of the year, and we'd have a lot of trouble making much of any headway until mid-year. And then we expect that in the second half of the year would have seen a significant rally coming close to exiting the S&P 500 at around 6600.

Really spot on. In terms of that, we were pretty close. If you look to where the S&P is today it's almost there. So great call on the equity market Steve. Third Rajeev, when you wrote also back in November, you talked about a possibility or 2 or 3 rate cuts in the year of 2025. And that was very different from some of the other competitors and pundits that we listened to who were calling for many more than that. So you're spot on here. When we get to this December meeting on the 10th. It could be the third time during 2025. So your 2 or 3 cuts during the year was also spot on. Great call there from the team. The other five were more on our portfolio strategy type calls. So just a quick rundown here. We had our international exposure, which we had been underweight to for about three years, which was really a great call for our clients.

And then back on April 1st of this year, we neutralized that underweight for our international exposure, which has again been very favorable given where international markets were. So that's one for one. There. Rebalancing. If you looked at our weekly investment brief that we write every single week, you'll go back to April when there was the market selloff during Liberation Day back on April 2nd, where the market had a significant downtrend, almost 12%. And we advised our clients to look at rebalancing back into that market and again, if you've watched what the stock market has done since April, it's been on a pretty big tear. So great call there, George and the team. Then when we got to September, we also thought that the market got a little frothy with your comments, Steve. And also your comments, George, and maybe rebalancing a little bit down on equities to take advantage of some of the valuations being pretty high in specifically the tech sector. So those three for three, the other two we were a little off. We'll talk to George about that. We had a slight underweight to mega-cap throughout the year and a slight overweight to small cap.

So we'll get to that for our tactical asset allocation call. We can pin on that George. And then the last one was we always have this emphasis based on our analytics towards quality investments, both in the stock market and in the bond market. And that did not necessarily do as well. This year. So George, you want to share with us some of the thoughts that you had on the underweight.to mega cap overweight to small cap.

George Mateyo [00:19:12] You had to pick up the negative I guess, huh Brian? Okay.

Brian Pietrangelo [00:09:15] Well, I couldn't say we were eight for eight!

George Mateyo [00:19:19] Yeah we were never perfect. But yeah, kudos to Steve and Rajeev as well for making some really prescient calls over the course of the last 12 months. And even beyond that, I mean, I think we've had a pretty good track record, knock on wood. And, you know, it's a hazardous business to get to put forecasts out there. And we don't again, we don't specifically make any forecast like some competitors do. Those are, you know, I think prone to even more error. And frankly, they kind of connote this, this illusion of precision. But we can talk more about that later. I think overall, in terms of things that we've been talking about, that we've been kind of structurally underweight.

The mega-cap. Yeah, that's been kind of a tough call, but that's, to me, more of a risk management decision than a pure station decision. And what I mean by that, I mean that I think we've seen there's just this continued strength in the Mega-Cap market, and it's been surprisingly good. And I'm not going to dismiss that. And we were probably a little bit too cautious about that. But at the same time, you know, as I mentioned, it's a small bet for many of our portfolios. And I think it's still the right bet to make in the sense that if you look at where the valuations are stretched the most and at this point where we maybe where the froth has been the greatest, it's been that core of the market where the, the overall, strength of some of these big leaders, you know, they continue get stronger, but they continue to get more stretched in terms of valuation.

So again, if I just put some numbers out there, the, the, the 100 largest stock now in the S&P, you're trading at roughly 30 times earnings. The cheapest stocks in the overall market are trading at about 16 times earnings. So, the smaller cap I should say. And that's a pretty big gap I mean that’s; you know, a pretty big yawning disconnect between the large and the least large, if you will. And what we've also kind of a noted is that we think, and I think this is still the case for next year. This didn't quite come true this year, but we still think there's going to be some earnings recovery, meaning those companies that really are the lower part of the market will see their earnings growth recovers.

So, I think we've looked at in the aggregate, we think it's appropriate probably to be somewhat balanced in terms of where your exposure is. And as I mentioned, maybe from a risk perspective, you know, a little bit underweight. The real mega-cap stocks is important. And I'll be very selective. You know, I think one thing that probably is underappreciated, what Rajeev and Steve do for our clients is the fact that they think about how to structure portfolios, looking at individual securities.

And there you can express a view in terms of really where you want to be, towards some stocks and some securities, some bonds and less exposed to others. So again, if, for example, we don't own the Mega seven outright, others, maybe they should, but we're more discerning about that. And the same thing, what's true in the bond market where we want to be more discerning, and we also have you mentioned the last thing I'll point out really quickly, right?

I think you mentioned, I think it's also important to note, is that we do have a strong structural bias towards quality companies. And that actually has not been rewarded. This year. Usually we think that it is a long term benefit, a long term thesis of ours. But this year of some of the best performers have been the, the, the worst companies in terms of their performance and their overall financial metrics. You look at, for example, companies that have no earnings, some companies have new revenues, and yet those stocks have done the best this year. So it has been kind of a low quality rally. And that actually has also been somewhat detrimental to our performance on a relative basis, I would say. But overall, we think that's going to be the more advantageous position to be in the long run because we do think over time quality wins out.

Brian Pietrangelo [00:22:25] Great summary, George, and we'll take stock of it every year given the difficulty that it is in the market. And I think those two are very promising from the perspective, emphasizing quality over the long term. It has been rewarded, just not this year. So great summary, George. So with that, that was our scorecard for 2025. So pretty impressive from the team.

And we'll use that as a pivot. George, for you to mention, as I did in the opening remarks that we've got our upcoming national call on December 3rd, where we will discuss our 2026 outlook, just like we did last year, and give our listeners a preview of some of the things that we might be talking about during that 2026 outlook.

George Mateyo [00:23:03] Well, I'll tease a little bit, because I think it's still coming together. I know Rajeev and Steve have been really hard at work, and our teams at the heart of work, trying to think about how to describe and discuss what we think will happen next year. And I venture to say that we probably won't get 75% of the calls. Right, but we'll see. I think overall, you know, there are three big things we'll be talking about. And we'll be talking about disruption. Does that really, we're at a time right now where the rate of change is accelerating and the forces of disruption are becoming more pronounced. So, we'll talk about three big ones. We’ll talk about this kind of overall I guess shift away from globalization into more of a nationalistic approach, the way many countries are behaving. That's actually having some implications for traditional norms and kind of historic precedents unlike we've seen before. So, we'll talk about some of those big shifts that are happening globally. Then we'll spend a little more time talking about some of the big changes that are coming with artificial intelligence.

We can't ignore that. That's been a big part of course. And let's continue to probably kind of also, going to be a be the case next year. And then lastly, I think something that might be kind of happening for a while, and maybe, again, underappreciated is the fact that there's a lot of structural changes happening inside the markets themselves. So we'll talk about those three big, shifts and those big sorts of disruption and what they might mean for clients’ portfolios in the years ahead.

Brian Pietrangelo [00:24:21] Well, thank you for the conversation today, George, Steve and Rajeev, we appreciate your perspectives. And again, one last reminder to have a great Thanksgiving next week. And after that, on December 3rd, we're having our national client call with our outlook for 2026 as we just discussed.

Please join us if you can. Well, 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 in two weeks as we are off for Thanksgiving. When we get back, we'll see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:25:11] 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.

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, November 14th, 2025. I'm Brian Pietrangelo and welcome to the podcast.

In case you didn't hear, this week marks the end of the penny for the U.S. currency. The United States Mint struck the final five U.S. pennies back on Wednesday afternoon, which ended the country's 232- year history of making the penny. Earlier this year, President Trump had given the order to stop producing pennies because of the cost is much more than is actually the value of the penny in some vicinity of roughly $56 million. And in case you didn't know, a penny is a combination of both copper and zinc and cost around 3.7 cents to make each penny, which is obviously only worth $0.01. So it will be interesting to see how this plays out. I know that pennies are still in circulation relative to banks and using them for purchases, I just don't know how it will affect the overall digital world that we live in today, and rounding up to the nickel. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Rajeev Sharma, Head of Fixed Income, and Brad Thomas, Managing Director of Equity Research within our KeyBanc Capital Markets line of business. 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. The economic calendar was extraordinarily light in general, but also on top of that, we did not receive the expected reports we were going to get according to the normal calendar. Examples of those include. The initial unemployment claims report was delayed for the seventh consecutive week due to the government shutdown. CPI inflation, PPI inflation and retail sales reports were also delayed this week. The good news, however, is the government shutdown did end after the longest in history, at 43 days, based on the fact that the party line votes were regularly consistent, however some Democrats did come across the aisle to work with Republicans to get this reopened, and then President Trump signed it. So now we have the work to do to reopen, and it should benefit those that need a little bit of back pay: air traffic controllers and other departments that we rely on within the government.

In addition, this week we heard the announcement from the Atlanta Federal Reserve President, Raphael Bostic, that he intends to retire at the end of February in 2026, which brings an interesting dynamic in terms of turnover at the Fed bank presidents. Plus, we've got the upcoming Jay Powell term ending in May of 2026 for his chair position. We will talk with Rajeev about that, get his perspective. In addition, thoughts from George on the government shutdown and what's happening in the economy. And last, we will have a conversation with George and Brad Thomas, our guest as a managing director from KeyBanc Capital Markets in terms of what's happening in the consumer sector.

So let's start the podcast today, moving to George to get his thoughts on what's happening. And I would be remiss if I didn't say, George, how about a penny for your thoughts?

George Mateyo [03:50:00] So the demise of the penny. Yes, Brian, that's a that's a good point. And, kind of sad to see it go to some extent, but I did recognize or maybe I read somewhere recently that it cost over $0.03 to make a penny. So maybe this is probably a better economic situation than we might make it out to be, in the sense that maybe we save some money in the process of, seeing the penny by the wayside. But but look, I think the bigger picture, of course, in the sense that if authentic $0.03 to make is that inflation is still a concern to many people, and that's evident by some of the Fed speak that we've had this week.

And we'll get really start on that in a second. But that just kind of takes the, you know, maybe a, path into the discussion around the deeper and longer narrative around what's happening in the market this week. And I think it's probably just a situation of great unknowns right now, as we kind of head into a slower time of the year in the sense that there is a lot of unknowns with respect to what the Fed might be thinking.

As you think about their next meeting in December. Of course, there's still a lot of unknowns with respect to the data. You, I think, referenced that a little bit in your comments, too, where we have to acknowledge that there's going to be probably just this void for a while. We might actually get a lot of data at once, but I think we're still trying to that we recognize that all the data we normally have is still being pieced together, so we don't have a really full, a great handle on really where the economy is at the moment. And I think there's also still a bit of, you know, uncertainty just around, you know, trade policy still. Right? I mean, we've talked a little bit about that and it kind of feels like a bit of a game of whack-a-mole that some of our listeners might remember in a sense, that I saw this week, and I was pleased to see you actually go down for coffee and bananas.

You know, two things I consume on a regular basis. But at the same time, tariffs are going up for time past I which, Brian, I know that's in near due to your heart and your family's traditions. So, you know, I still think we've got this ongoing on again, off again situation with respect to tariffs, but just adding greater, confusion as well. And then thirdly, I think we talked a lot about on this call, which has to do with artificial intelligence. And we've kind of seen the transition from kind of growth and I think to growth almost at any, any clip. And you'll see your stock price rewarded. Now what's happened I think is we started to call out in the past few weeks or so that investors are becoming a bit more discerning and probably a bit more selective, in other words, that they're not just chasing things because they're chasing them, but understanding that maybe there is some risk behind this massive amount of spending that's happening. Not to say that we're bearish on I certainly, but I think it does. Maybe some questions get raised around the profitability of all this. Spending will actually be what would come, I guess is the real question. So I think it's fair to say that there are a lot of crosscurrents still a lot of unknown questions, a lot of, uncertainty and fogginess to use one of, Jay Powell terms with respect to where the economy is.

So, Rajeev, you can put all this together. It's not surprising to me to see some confusion and maybe, dissension amongst the Ben, but the level of dissension, I think is really kind of raised a fever pitch this week where I think there's at least now 3 or 4 Fed governors or soon to be Fed governors or presidents of different Fed banks that are going to be on the committee next year that suggest that maybe we're going to see a very divided set when they meet later this, next month. So how are you thinking about what the Fed is thinking about? And maybe what does that mean for markets in your view?

Rajeev Sharma [06:57:00] Well, George, I think the big question remains. And as you said, will the Fed cut rates next month? And, a number of Fed members hit the airwaves, this week, and they didn't really sound very convinced that the Fed is going to cut rates. That led to some of the market expectations out there feeling that maybe a 25 basis point rate cut in December is now down to a coin flip? It's about 5050 odds right now. If we do get some belated data reports, it should help provide the market with clarity on where to place their chips as far as a record goes in December, because it is very rare that the market prices in Fed decisions as a coin flip just one month in advance of a meeting.

Generally, the market has a really good idea of where the Fed's going to be, next month, if you will. And right now it's coming down to a coin flip. A lot of that has to do with the government shutdown. A lot of that has to do with the lack of data. You know, the Fed really needs the data and so does the market. We may get some belated data reports. Will they be enough for the Fed to make a decision by now? There should be clarity and there's not. The bond markets do not have that clarity today. And then you have you know, other Fed members coming out and talking about, you know, we need more data. The other thing that add some alarm bells is the Atlanta Fed president, Raphael Bostic, announcement this week that he's going to retire at the end of his term in February 2026. This type of leadership turnover raises some questions about the Fed's ability to maintain its tradition of independence. So once again, those questions start to come up. How independent is the Fed going to be going forward? The Trump administration has been pushing for a more dovish Fed members. They've been pushing for rate cuts. Now you have Bostic replacement will be announced at some point next year.

That replacement will not be appointed by the white House, but, it'll be appointed by the Atlanta Fed. Fed's board of directors. So that does limit some of the direct presidential influence that may happen on this. But the context of turnover in the Fed, it never settles well with the markets. And I do think that, again, it adds the point where what is the makeup of the Fed going to be? How many dovish Fed members are going to be on there. What does that do for 2026? Outlook and beyond as far as rate cuts go.

And the market was not spared of this. I mean, this market the bond market experienced some excitement this week. We did see yields move higher on the talks of ending the government shutdown. Inherently that puts the risk on trade back on. And we did see investors move away from the safety haven nature of, treasuries and more towards risk assets. We also had a very busy week this week with Treasury auctions. Treasury supply hit the market this week in the form of three year tenure and 30 year treasuries. They totaled about $125 million. So that also put upward pressure on Treasury yields.

Overall, the three year auction did pretty well, but the ten and 30 year option had some mixed investor reception. And again, I think it comes down to the ten year right now, we're seeing the ten year at 4.11% this week. Despite the feeling that that's a big move, it remains pretty much at the midpoint of where we've been this month. This month, we've seen the ten year trade between 4.05 and 4.16%. So if I look at my screens this morning, I see buyers stepping in. I think buyers really get excited when we get above four, ten, four, 15. That's when you start seeing buyers feeling that this is an attractive entry point for the ten year. And when we started the, when the government started to shut down in early October, we did see a rally in bonds.

We did see yields fall for four straight weeks. As soon as the negotiations of reopening the government began, yields started moving higher. The reopening lent, support to consumer confidence and growth. And that also raises the odds that the Fed will pause in December. So there's a lot of moving parts here. I mean, credit spreads when reflected I mean, we saw an investor grade credit spreads this week wider by about two basis points. It's not a big deal considering the amount of new issue that we've seen in the market this week. High yield spreads were wider by seven basis points. Again, no alarm bells. So right now I think it's all going to come down to what kind of belated, data reports we get, what kind of Fed narrative comes out from the Fed before we lead up to this December, if I'm assuming.

George Mateyo [11:11:11] That's a really good backdrop, Rajeev, and I appreciate the context around kind of what's happening inside the Fed or what might happen in the Fed. In the next few months or so. To widen the lens a little bit and maybe I'll put our guest speaker here, Brad, into the conversation. So for those of you who need a quick reminder, Brad is a recurring guest or returning guest, I should say, so welcome back to the podcast. I'm glad to have you. Brad is a, managing director over at our key capital markets equity research team. Does a great job covering, money. The consumer stock, in, in the universe. And I think it's fair to say, Brad, that, you know, as reviewed talked a little bit about the consumer is at an interesting point.

Right now. We're they're dealing with a lot of uncertainty as well, on many levels. And I guess if you kind of think about the companies that you cover, what can you glean from that in terms of how the consumer is behaving? How are they thinking about, you know, spending as we get into the holiday season? And maybe we could talk a bit about this thing called a k-shaped economy, if you don't mind.

Bradley Thomas [12:05:05] Sure, George, and thank you for having me. There's a lot of interesting things happening right now for the consumer, and I would venture to say that there's probably more crosscurrents right now than we've seen in many, many years. But what we keep going back to as we think about how investors should be positioning for 2026, is that you've got fingers crossed, monetary stimulus and fiscal stimulus at your back.

That should support continued consumer spending. What we're hearing from our companies is, I give you a couple of bright spots here, durable goods. Home related spending for retailers like Home Depot and Lowe's, Wayfair, Williams-Sonoma. These are companies that were very challenged coming out of the pandemic. And we're finally seeing some growth again for these companies in in these categories.

And so that, I think is a bright spot. Larger retailers like Walmart, Amazon that we cover continue to drive very healthy sales growth. The challenge tends to be more in the middle, and that if you're not providing value, you're seeing some pressure. We're seeing that at target right now. Steers clear winners and losers. But overall we think the consumer is holding up still.

Well right now.

George Mateyo [13:33:21] And so I get the sense, though that there's probably some bifurcation though. And I kind of reference this a little bit with this notion called the k-shaped economy, which we've done. We talked a little bit about that bread, but I don't know if our listeners really maybe they just need a quick refresh. But, you know, you had think consumers at the high end of the wage spectrum, right.

And certainly they benefited from higher stock prices. Right. This is wealth effect I think is a real phenomenon in the sense that as your point K grows, you probably hold it better off if your home grows at least, you know, according to Zillow, you know, you feel better off. And, you know, people that have homes that actually have retirement accounts are probably some pretty good.

On the other hand, consumers that really maybe aren't as fortunate, maybe they rent for example, maybe they don't have quite the retirement savings and the nest eggs and so forth maybe feel a bit worse. Do you see that in actually the companies that you cover? Are you seeing maybe a bifurcated consumer at all.

Bradley Thomas [14:25:00] That's right. And it's a really important factor in the math behind

That's so important is that the top 10%, wealthiest Americans account for 50% of spending in the U.S and so while at an individual level, mathematically, it wouldn't seem to make sense in dollars, it does. And so that's where the stock market staying high and being today near all time highs is still a really powerful factor for the US consumer.

And so we are seeing, names that cater to a more affluent consumer doing better. We're actually seeing even value oriented retailers like Walmart, Costco talk about, getting higher income individuals coming in and driving their sales growth, at the low end. Interestingly, we're seeing the dollar stores do very well, and they say they're seeing some trade down from middle income individuals. And so I think that exhibits that k-shaped economy. You know, what we're watching going forward here would be obviously can the stock market maintain strength and that help keep the upper income individuals spending? And then at the lower end, can we get some benefits from knock on wood inflation moderating as we get past the tariff increases that we've had of late.

And, you know, could we perhaps see some of the cuts that the Fed is doing to trickle through to the shorter end of the curve and help credit card bills for a lower income individual?

George Mateyo [00:16:09] What about Sam? What within their wallet or within their spending, are they are you seeing consumers spend more on? I've heard things, for example, that consumers are spending more on experiences and things. And I know that doesn't really kind of exempt anybody from the everyday things that everybody needs shampoo and food and things like that, that require them to go to one of those stores you mentioned.

But are you seeing any shift in the way that they spend right now? Bread and spending, especially if you get into the holiday season, right. We're just a few weeks away from the holiday shopping season.

Bradley Thomas [00:16:38] George. I think we're finally at the end of the revenge spending that we were seeing coming out of the pandemic. You know, my restaurant analyst colleague Eric Gonzalez would probably be telling us right now about the challenges that the restaurants are seeing with how high menu prices have gotten.

And, and so this follows a number of years that people were obviously going out and really enjoying being back at restaurants after the pandemic. On the flip side, as I alluded to earlier on our home related spending side, we're finally seeing people, back spending on homes again after many years of not feeling like they needed to because they spent on so many accessories during the pandemic. So I think some of that is kind of wrapping up and and we think we're headed to a bit more normalized trends in all these categories going forward here

George Mateyo [17:34:00] in red. So she talked a little bit about the inflation effort. As it relates to restaurants and so forth. Are you are you seeing much in the way of impacting actually the companies themselves? So you talk about some of the major retailers, how are they managing through the uncertainty around tariffs?

Bradley Thomas [00:17:48] Yeah, it's a great question George. I'm glad you brought it up because as I mentioned earlier, this is a time where there's many crosscurrents. And one of the key ones that we're watching for this holiday season will be how much does the consumer push back or have to cut back on purchases because of some of the tariff increases?

There are categories like toys, where a lot of it comes from China. You just can't switch to other places on the toys. You know, we think holiday spending will still be strong in dollar terms, but there may be some houses that have one last item under the tree because of the tariffs. And, looking forward, you know, we think the consumer will be able to navigate it.

It is in more select categories. And we have seen, the Trump administration just, pull back tariffs by 10% from the fentanyl related tariffs. And so that should be a good guy as we think about the tariff and pricing dynamic as we move into 2026. But again, the price increases is something we're watching closely. And every management team would tell you they're watching really closely for this holiday season.

Brian Pietrangelo [00:19:02] Brad, George - George connected that with inflation and consumer spending habits quite well as your response. But one of the things that we've seen recently from the New York Fed was an increase in 90 days, plus delinquencies in credit cards, auto loans and student loans, loans. How do you think that plays in?

Bradley Thomas [00:19:20] So as we think about credit that ties to the k-shaped economy, that lower income individual, our math suggests that they've been having to tap credit cards at an increasing rate to order in order to keep spending. That's something that has had us worried about, in terms of the health of the consumer, in terms of the health of their ability to spend.

And this is where we believe it was warranted for the Fed to be cutting rates, because we think that that will tire that lower income individual and the hopefully lower credit card bills on the horizon from a lower interest rate, you know, could be a good guy. So, the coincident indicators not great, but the leading indicators, hopefully positive here.

George Mateyo [00:20:10] Brad, any final thoughts with respect to our, our our investors and our clients as we think about next year? You know, again, we're in the process right now of putting together our thoughts on the year ahead as well. And you've got to news you you've kind of mentioned that a few times, but anything we should note as we close out the call here.

Bradley Thomas [00:20:27] Yeah, I, I think I alluded to it earlier and you all have talked about it for, we think the tailwind for the US economy still should be a positive one. Normally you get monetary stimulus and fiscal stimulus, and that's a good thing for the consumer and the economy overall in our coverage, we think there are some amazing retailers out there like Walmart, like Amazon, very well positioned to grow and take, share, on a future podcast.

I'd love to have Justin Patterson or Jackson or some of my colleagues, however I and software on to talk about that. But from a retail perspective, we think Amazon is in a great space to continue to grow. So there's some wonderful investment opportunities still out there. You know, we think for investors and, again, a number of reasons that hopefully consumer spending stays strong into 2026.

George Mateyo [00:21:24] Super. Thanks so much Brad. Great to see you again.

Bradley Thomas [00:21:26] Great. Thank you.

Brian Pietrangelo [00:21:28] Well, thanks for the conversation today George. Rajeev and Brad, 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 [00:22:04] 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.

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, November 7th, 2025. I'm Brian Peter Angelo, and welcome to the podcast as we head into the weekend.

I would like to remind people coming up next week on Tuesday, November 11th is Veterans Day. Veterans day is observed as a Federal holiday, and it does fall on November 11th. It is designated as a day to honor the more than 20 million men and women who have served in the military. Now, this is slightly different than Memorial Day, which honors those that have died in service.

Veterans day is honoring those that are still living and have served. Veterans day was first observed on November 11th, 1919, known as Armistice Day, and honor the first anniversary of the end of World War One, which officially ended on the 11th hour of the 11th day of the 11th month in 1918. Later on, Congress called for an observance of the anniversary.

By 1938 and back in 1954, President Dwight Eisenhower officially changed the name of the holiday from Armistice Day to Veteran's Day. It is currently known today, so if you have an opportunity to thank a veteran this weekend and next week, and especially on Tuesday, I know that it would be much appreciated. Thank you everybody. With that, I'd like to introduce our panel of 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 www.key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series which addresses 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 a very light week, given the fact that the government shutdown is continuing into day 38, and that means that the normal economic reports that we would receive this week, we are not receiving because they are on hold. In particular, the weekly initial unemployment claims report at a Federal level was not prepared, the job openings report from the Bureau of Labor Statistics and the Employment Situation from the Bureau of Labor Statistics, which include the new nonfarm payroll report we were supposed to get this morning, were also delayed due to the government shutdown.

So we look to alternate data, and some of that data begins with the initial unemployment claims at the state level, which normally gets aggregated up into the Federal level, and the reads from the state level. Reports show that there has not been a meaningful spike in any initial unemployment claims. So we look at that as somewhat favorable.

Second, ADP came out with their report this week that showed private payrolls increased 42,000 in the month of October, which was above consensus estimates. Again, we usually don't report on that because we use the Federal numbers from the Bureau of Labor Statistics, but it is worth mentioning, since the indicator that we have for this week.

And finally, the report from the employment firm known as challenger, Gray and Christmas showed that layoff was significant at around 150,000 in their report. And at the same time, it may or may not be overstated. We're not saying that it's inaccurate. We're simply saying that it does also include government layoffs that have included through the year.

However, we do mention it because it is noteworthy that it got a lot of press this week and also indicates that technology, industrials, and other automotive industries have been showing some particularly high layoffs. And last on the jobs data, the National Federation of Independent Businesses had their report for small business owners and showed that latest data had solid but slowing job growth. Small business owners are also facing challenges in that October, around a third or 32% of all owners reported that job openings that they could not fill in that current period. So again, there's still a little bit of a demand for workers in the small business arena.

Also happening this week, we continue to get a round of Q3 earnings. And on the tariff front, we had the Supreme Court of the United States hearing arguments from Solicitor General John Sauer in defense of President Trump's tariff policy. So we'll continue to get a little update on that. As we talked to our panel today.

With that, let's turn to George to start off our podcast with his thoughts on the economic data, the government shutdown and anything else on your mind today. George, what are your thoughts?

George Mateyo [00:04:55] So, Brian, I think it's probably time to recognize that I think the shutdown is starting to really have an impact on at least sentiment. I'm not sure if it's really having a profound impact yet on the economy. I think we'll probably get that later. And as we've talked about, typically when we see these shutdowns, the impact is kind of like the big weather event where, you know, you see some activity kind of slow down a little bit, and then when things reopen, you know, things actually kind of come back online and then maybe there's a bit of a bump because the activity was suppressed and then it resumes.

But this is a usual in the sense that this is an historically long shutdown. Now we're well into the 30 plus day. I think it's day 37 or so. And by all accounts, it looks like we're probably, you know, at least another week or two away from any resolution. So this is going to be, again, probably the longest shutdown on record. Just remind our listeners the average shutdown historically has lasted about a week. But typically shutdowns last a couple days. And there's one shutdown that actually lasted just a few hours. So again by just duration standards, this is somewhat unusual and lengthy. And again, I think it has kind of weared down sentiment.

I mean, you've talked about some of the the alternate data sources with respect to the labor market. I think we could continue to argue that things are not collapsing, but they're certainly cooling. I think they’ll probably kind of, you know, kind of meander for the rest of the year until we get maybe a bit of a lift in the early part of next year due to some, issues related to the One Big Beautiful Bill Act and other things we could talk about, perhaps later or in another call.

But nonetheless, for this time of the year where things are probably going to slow down a little bit and it'll probably be a little bit of a bumpy ride, given that slowdown we've talked about.

You know, there's other things we can look at. You mentioned a few of those, but I think the thing that caught my attention is that a percent of people who are actually currently employed, but are looking for additional jobs actually rose as well. So, again, these are things that we probably have to squint normally when we're kind of looking at a full slate of data. But since we don't have that full set of data, we're at the point right now where things are a little bit muddied and that we have to look for alternative data. And again, the data suggest to me anyway that things are not collapsing, but they're certainly cooling for sure.

At the same time, you know, I think some of the sentiment indicators, which historically are pretty volatile, also kind of reflect that, immediate, if you will. So the sentiment indicators such as consumer sentiment, their outlook for the economy continues to, to weigh a little bit. Again, it's it's at three year lows, I think on one survey.

So it kind of has to do has to get your attention. But again those things can change pretty quickly. And so I think it is fair to say that, you know, again, where we are right now is that things are going to be right around-people-I guess the one phrase is that, we're in the dark right now and people are often afraid of the dark, so we're kind of in this situation where we have to navigate through a lot of uncertainty.

But meanwhile, Steve, as I think about what you've been probably watching in the past week or so, is that their earnings story has been pretty solid. So the market up recently has been kind of ignoring some of the sentiment and the government shutdown issues, but focus more on earnings as you kind of get now through earnings season. I'm thinking we're probably roughly eighty or so percent of the way through earnings season. What do you think about the earnings season overall and where do we go next going forward?

Stephen Hoedt [00:07:47] Well George, you know when we look at where the earnings line for the S&P 500 and when we talk about that we're talking about 12-month forward earnings, which is what everybody focuses on. We actually hit a big round number this week. We hit $300. And I mentioned on a couple of these prior calls that, I think when, when I look at, our forecasts for 2025, we thought that we would exit the year at $300 per or, per S&P 500 index level. And you know, what's interesting to me about that is we got two more months almost to continue to see that line climb higher as we head through the rest of the year and flip the calendar to 2026.

So earnings have clearly come in, this year much better than people had expected. And I think it's part and parcel of why we've had a really good market this year. Absent kind of the, the tariff impact, coming out of February, March and April, which did cause a little bit of a of a dip in the earnings line before we continued to march higher. So, you know, at the end of the day, earnings higher, equal stocks higher on a long-term basis. And that's kind of been our mantra for quite a while. It remains very difficult to bet against the S&P from a long-term perspective, when you've got that earnings line moving to new all-time highs.

That said, you know, it's been very clear over the last month to month and a half that we've seen some froth building into the market. You've had a lot of meme stock stuff start to float to the top again. You've seen a lot of speculative activity. In my view, you've seen people get kind of two one sided on the market in terms of thinking that that they should just be all in on the AI and tech names and all that kind of stuff.

And, and what that results in, predictably, is the setup for the market to pull back a bit. So we've, we've seen the market pullback to the 50 day moving average this week. We're slightly below it in today's trading. But when I look at other indicators from whether it's credit market indicators such as, high yield CD spreads or things like where how the VIX is behaving, that's the Cboe Volatility Index.

I don't see anything right now that looks nefarious about this pullback. It feels to me more like it's just a reset of some of this kind of overly ebullient sentiment that we've seen kind of come into the market over the last couple of months. And, and, you know, it kind of will hopefully wash things out a little bit on the sentiment side and set us up for a strong run into year end.

And that that really is kind of the, kind of my base case between now and year end is that we, we do see the normal seasonality pattern reassert itself. We're into the strongest part of the year from that perspective. And when you've got again, earnings making new highs as we continue to go through this, there's clearly fundamental backing for the market to see that rally in the year end.

So definitely been an interesting week to see the numbers come out and to see the stocks be going down. But, at the end of the day, I think it's more just washing out some of that over-ebullience.

George Mateyo [00:11:06] Well, that's a great update, Steve, I appreciate that. I think Rajeev turning you, it's kind of curious to me, as I mentioned in my comments, that, we started we start to see, you know, again, this ongoing cooling in the labor market. Steve talked about AI. And actually, if you try to take out the impact from AI, the economy is going okay, but it's kind of, again, kind of sluggish overall. So again, AI, to Steve’s point, has really been responsible for a lot of the growth this year. And yet Rajeev, we actually had a couple of Fed presidents out this week talking about whether inflation is the bigger risk. And I think one of the Fed presidents actually talked about that inflation would need another 2 or 3 years before it actually reached their target. So how do you think the Fed is processing this level of uncertainty right now?

Rajeev Sharma [00:11:45] George, I think the Fed is trying to temper the market a little bit. I think the market, really got ahead of itself and started feeling that the Fed would let inflation run hot. Many Fed members are saying the most important thing is the cooling of the labor market. And, now I think the Fed is which said members that are speaking this week, I think they are really trying to remind the market that there is a dual mandate. Inflation is important. Inflation, if it runs hot, is not good for the economy.

And I think that, you know, it's tempering the market expectations on future rate cuts in future monetary policy. And so you're seeing right now that fixed income markets, they're seeing somewhat of a mixed performance this week based on those comments. And they're viewing the Fed as being a little more hawkish than they thought the Fed would be when the Fed starts cutting rates the market gets very excited. The markets started believing in a continuing rate cutting cycle. They start anticipating multiple rate cuts. And now you're seeing a couple of different factors happening in the market. First of all, the market for the Fed is not getting the data that they are expecting to get to make those rate cut decisions. And we heard from Fed Chair Powell the last FOMC meeting that without the data, December rate cut is not a foregone conclusion.

And the market did not like that that narrative. You saw the odds for a December rate cut drop down to 50% where they were almost at 98% before that, before those comments. We’re slowly clawing back-the market again is starting to claw back towards a rate cut expectation in December. Around 72% odds right now. But it's again not a foregone conclusion.

And when you see Fed members talk about inflation, I feel like it reminds the market that there is a dual mandate. The Fed cannot make these decisions about rate cuts with just ignoring inflation. I do the Fed moves the goalposts and say we can operate at 3% or 3% plus inflation and continue well, or they stick with their targeted mandate of 2%. So that disconnect is causing volatility in the markets.

We did see Treasury yields move with some variability across the curve. Specifically we saw the front end of the yield curve move slightly lower by one basis point back in use rose by one basis point. The yield curve flattened this week. Because the market is now expecting tighter monetary policy based on some of the, the comments that we're hearing from Fed members.

And again, as I said, without economic data, there's a growing concern that the Fed may not reduce, that we may not have as many rate cuts as the market has anticipated. And so, the messaging is going to be very important by the Fed right now. There is a disconnect. You could see that in corporate credit spreads for investment grade and high yield, both spreads have widened this week. And what's going to be very interesting in the near term to the fixed income markets is the amount of supply from the Treasury that's going to be coming to the market. The Treasury will sell $58 billion in three years, and on three year Treasury notes on Monday, forty-two billion in 10 years on Wednesday, and $25 billion in 30 year Treasury notes on Thursday. So the market has to digest this amount of supply coming in. Now the bond market is closed on Tuesday for Veteran's Day, nut this corporate bond market is going to continue up to Tuesday and then into, Wednesday, Thursday, Friday of next week. We're anticipating corporate bond new issuance to be around 40 billion, which is a very, very, significant amount of supply that's coming to market.

So you have spreads widening. You have this uncertainty by the Fed of whether they're going to have rate cuts in December or not. And you're starting to see the ten year kind of reflect that. We're sticking around that 4% level. But I think that, there's a lot of factors here that's going to be very important - the government shutdown - it's weighing on the economic outlook, and I think that's going to continue.

What investors are thinking right now is, is a couple of different things right now. Obviously, the supply that's going to come to market is very important for the market to digest that. They're also thinking about the uncertainty surrounding the Supreme Court decision on the legality of these Trump tariffs. And, a ruling against the tariffs would actually be, a bearish move for the bond market. It would- might require more long end issuance. And that's weighing on the sentiment of the bond market right now. And you could see some other stresses in the bond market. Money markets is one of them. We've elevated funding costs and emergency Fed interventions.

They could be showing some liquidity strain to the money markets. We see the largest one day move of outside of a Fed rate hike cycle this week. And the, overnight financing rate. Add to that bank reserves are down by almost they're down to a point where they're below $3 trillion. That's the lowest level we've seen in four years.

So we're seeing some funding pressures in the bond market. Basically, short term liquidity is tight. Money market funds may face lower yields and even redemption pressure if this volatility continues to.

Brian Pietrangelo [00:16:31] So Steve, you mentioned the rally in the markets since the tariff related news in April. And Rajeev, you just mentioned the legality question about tariffs as well. And this week for our listeners, US Solicitor General John Sauer was in front of the Supreme Court of the United States talking about the legality of the tariffs. And the general perception is that this is a process. And even if there is some deliberation, there might not be some consensus on deliberation until January or May of next year. So, George and Steve, how do you think that affects the overall economy and the reaction in the stock market?

George Mateyo [00:17:05] I think it's an interesting question, and I don't think anybody really knows, to be honest with you. I mean, I'm sure Steve's got a couple views on that because it could be somewhat beneficial to the companies that actually a corporation is effectively that actually had to pay these tariffs. Right. So maybe to some extent that the tariffs and if they're unwound or deemed to be unconstitutional, maybe that money gets repatriated back to those companies. I don't know. You know, that's one of the things that Rajeev talked about that could have some implications for the Treasury if they have to drain their accounts to pay those companies back, that could be negative for the bond market and market, the stock market won’t like it if rates go up. So who knows. And I think at the same time, it's probably likely more than anything else that the administration would come back and find a new authority to use tariffs, right? They would find another way to get tariffs done basically. So I think it's going to be probably a real, jumbled mess, frankly, and maybe a lot of volatility. But I think at the end of the day I don't think is going to change too much, but I think some short term volatility might ensue. That's my thought. Steve, what do you think?

Stephen Hoedt [00:18:01] Yeah, I think to the- for the market impact, which is what we would be focused on that; that's the key piece that I think that it would, it could potentially increase volatility again as we get this potentially unwound. And you know it's just kind of it'll be fascinating to watch how the dynamics actually play out. Because if they actually have to go back and pay back the people who paid these tariffs, that's going to be, to quote Amy Coney Barrett, messy or a mess. So like I think that, the impact there would be, kind of all over the place. But to your point, I think it's 100% likely that they would find some other authority and try it all over again.

And that's what, to me would really increase the volatility. So, hard to hard to game it out other than to say that that maybe volatility levels next year as we head into the decision period will be higher rather than lower.

Brian Pietrangelo [00:18:57] Well, thanks for the conversation today, George, Steve and Rajeev, we appreciate your insight 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.

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