Key Wealth Matters Podcasts

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, July 10th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. And if you're an avid listener, that we were off last week in observation of the July 4th holiday. Happy Independence 250 for the United States of America. We hope you had the opportunity to spend time with family and friends and celebrate with each other and celebrate our country. And in the sports world this week, if you're an avid fan of soccer and tennis, you've got a handful of great competition, including the FIFA World Cup, with the United States men's national team going pretty far this year and ultimately having a good success track record before bowing out in their last game. And across the pond, we've got the Wimbledon tournament in full force. Good luck to all the competitors in that arena. 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, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we're going to pause and go back a week because we were off on the podcast last week for July 4th, so we want to bring you up to speed on that economic data from 2 weeks ago, which included two employment-related reports. So last week both reports were courtesy of the Bureau of Labor Statistics, and we have the JOLTS report, the Job Opening and Labor Turnover Survey report, which includes job openings, which came in at 7.6 million for the month of May, which was essentially unchanged from April, indicating that there's still a decent amount of employers looking to hire talent. And also that week, the second report is the Employment Situation Report, which includes non-farm payrolls, which showed a gain of 57,000 jobs for the month of June, which was half of what was expected. In addition, the number of jobs during the revision process, which is the normal process for the prior two months of April and May, were revised lower by 74,000 jobs. Now this cancels out the positive revisions from the prior month, so basically net net zero, and now we've got 4 consecutive months of declining growth rates in terms of new non-farm payrolls, and we'll talk about that with our panel in terms of what it might mean for the Fed. The second part of that report does include the unemployment rate for June, and it fell to 4.2% from the prior month of 4.3%. Not much movement there, but good news, in fact, that it is continuing to remain fairly stable. Now moving to this week, we've got two reports from the Institute for Supply Management's PMI indices. On the manufacturing side, the index has been in expansion territory for roughly 6 consecutive months, which is great for 2026. And on the services side, even though it was a small decline, that has been an expansion for two years consecutively, almost 48 months, however, on a non-consecutive basis where the services economy has been in expansion. So good news there. Also this week on the employment front, we get the weekly initial unemployment claims report, which continues to show very stable numbers at 215,000 for the week ending July 4th. Again, that has remained very, very stable for almost 2 1/2 years now. In addition, we also received the minutes release from the Federal Open Market Committee meeting back on June 17th, and the key themes there in the minutes were not a surprise. It continued to talk about the elevated concerns around inflation, but also talked about not necessarily tipping the scales for a rate increase yet, and certainly not in the upcoming July meeting. We'll talk about it with Rajeev and George and get the take for the panel. During the podcast, we'll also get Steve's take on what's happening in the stock market and thoughts on preview of Q2 earnings. But before we get to that, let's go to George and get an update on the Iran situation, given that there was some Differences of opinion this week and basically a crack in the peace deal. So George will talk about that in relation to what's going on in that area and also in the economy. George?

George Mateyo [00:04:48]

So Brian, I'm not sure if anybody's got a really clear crystal ball with what's happening in the Middle East, but to put it in context, I guess, for everybody at least level set where we are right now, at least where we think we are as of Friday morning around 10 A.m. Eastern. I think it's fair to say that the ceasefire appears to be collapsing. We all have seen evidence of that in the past few days or so. Rhetoric has actually been increasing. Escalation thus far has been somewhat contained. It hasn't been too widespread, but nonetheless, the conflict does appear to be escalating moderately, I'd say. And I think the key issue, of course, is the overall fate of the Strait of Hormuz and actually what happens there going forward. I think to some extent, the Iranians felt that there was maybe some leverage lost in the sense that You know, once the ceasefire was first announced, of course, the price of oil receded and that kind of took away maybe some of their economic leverage to some extent because that makes things a little bit easier for consumers when prices go down. At the same time, I think some of the hardliners in their country probably were emboldened and probably felt a little bit reinvigorated perhaps. following the funeral of their former leader. At the same time, I think it's fair to say that there's also a lot of ambiguity with respect to the ceasefire and the language over the Strait of Hormuz. I think the Iranians kind of interpreted the comments that both the Iranians and the Omanis would actually get together and determine the future of this rate as kind of a green light to actually kind of legislate actually how commerce flows through this strait. So that ambiguity, some of those other factors I just mentioned, probably suggested them that they felt like they had rights over the control of the state. And of course, that is completely at odds with the administration here in the US and how they see things. So where we go from here, again, as I said earlier, it's far from clear. I think it's probably more likely that, again, we'll probably see some new ceasefire struck in the next few weeks or so, because I think both sides probably have some vulnerabilities that they probably acknowledge internally. around kind of what happens next. I think the Iranians, of course, have still a very fractured leadership structure, of course. And I think here, of course, at home, the administration is getting ready to focus on midterms and the price of oil and inflation probably actually factors largely into that discussion as well. So my best guess is that we'll probably see some type of new ceasefire in the next few weeks or so, some type of formal agreement, perhaps, again, maybe another MOU of some sort. And that probably kind of keeps oil probably in that $60 to $70 range. That being said, I still think there's probably a risk that we actually do see the conflict re-escalated to some extent. Maybe there's another blockade, maybe there's another type of conflict, or maybe some kind of escalation going further. And if that happens, then again, we could probably see oil hover back towards $90 or $100 a barrel. So again, there's a lot to think about. I think it could probably create a lot of volatility, a lot of noise in the near term. I still think, though, that the themes that we were talking about and the overall notion that the US is now more energy independent, meaning, again, most of the energy that we consume is stuff that we actually make here. So that's probably a net benefit to some extent. We actually are probably less immune-- actually, sorry, more immune to some of the pressures there. And at the same time, much of the world is still less energy-reliant than they were in the past, meaning we use less energy than we have in the future. So that's not to say that we have to be cavalier about this, but nonetheless, I don't think it's going to be quite the shock that it was, say, several decades ago when oil was at the center of geopolitics and economic discussions. Well, for us as allocators, though, I think it's kind of fair to say that the Fed is probably going to be kind of chewing this for quite some time. Of course, we have a new Fed share, and he's already kind of signaled that maybe inflation is something to be concerned about. So I think, I guess, Rajeev, for you, I think, I'm kind of curious to know how you think the Fed is processing this. Of course, they've kind of shifted their stance from Perhaps some easing or some cuts this year and maybe a hike later this year. But again, as far as I see, a pretty fuzzy outlook going forward. But what's your best guess in terms of what the Fed is doing with respect to their outlook on energy and inflation more broadly?

Rajeev Sharma [00:09:01]

Well, fuzzy is a good word to use with the Fed right now. We did get a glimpse into the Fed's thinking this week, actually, when we saw the release of the FOMC minutes from the June meeting. And just to recap for everybody, the Fed held the federal funds rate at 3.5% to 3.75%, but it was also the first Fed meeting chaired by Kevin Warsh. And what we saw in the minutes was a hawkish tilt, a divided Fed. Some officials saw a case for hiking rates at the June meeting itself, but they ended up going along with the rest of the members of the Fed. who mostly called to keep rates where they are. Overall, though, the dominant theme was price stability, or in other words, inflation. Several members said that inflation was becoming more broad-based and higher costs are going to eventually come down to final goods prices. The committee marked up their inflation forecast for the year, as we all know, raising headline and poor PCE projections. Now, you did have some committee members calling out AI, some called out energy. as inflation drivers due to the demand on electricity and prices. But most committee members were okay with the labor market, and they kept those projections pretty close to current levels. Now, the committee did remove some of the easing bias in the statement, and the statement itself was notably reduced. That is the Warsh effect, reduced forward guidance. With less forward guidance, we have a market that's not going to be focused entirely on each and every economic data report that we see. And with the minutes, the market reaction was pretty swift. The market started feeling that the minutes were released, the market realized how much the Fed is focused on inflation. Inflation is stubbornly sticky. The market started pricing in about 38 basis points of rate hikes for the year. And I think there was about a 36% probability of a July hike in rates. Now, we did treasury yields move higher because of this. We saw the two-year move up to a yield of 4.22%, and the 10-year broke through that psychological level of 4.5% and ended up around 4.6% midweek. So overall, the market views the minutes as hawkish, and that's really the only glimpse we're getting from the Fed right now. I think there's going to be reduced communications. The case for rate cuts is off the table, and the Fed under Warsh is a little less predictable, in my opinion. It's all going to be about data going forward. And another thing we heard about from Kevin Warsh this week was the appointment of these task force. He has five task forces that he has announced, Kevin Warsh has announced. This is communications, balance sheet policy, data sources, productivity and jobs. and an inflation framework. These are all task forces that will be co-led by three external experts and supported by the Fed staff. So they are really going to be providing findings to the FOMC. And again, the market is viewing this as Warsh's bet on a couple of different things. One, Warsh's bet on AI as a key economic force, and that's going to be the Productivity and Jobs Task Force. He's included Marc Andreessen and Xbox CEO Asha Sharma. Also, the group of appointees also in different task forces suggest that there might be some effort here to maintain a standing with the Trump administration, as Warsh is kind of drawing individuals that have knowledge about the markets, about economic signals. So I think that's something important to keep an eye on. This is a new Fed. This is not a passing of the baton, really. It's a completely new framework for the Fed, and the market's going to have to get adjusted to it. And the near-term volatility is obviously going to be expected because we're not going to get the kind of guidance that we used to get. We know that Fed Chair Warsh doesn't really like to talk about dot plots and stuff like that. So there's going to be some differences, I think, with the Fed going forward. And again, as I mentioned, every single data report, economic data report, is extremely important. We did get the June non-farm payrolls numbers. They kind of came below expectations that did drive the two-year yields lower by about 10 basis points right on the release of the data. And they did take down the July rate hike expectations. As I mentioned, they had gone to 38% that we couldn't get a rate hike in July. Now they're down to around 18% after the release of that data. So we are going to be seeing each and every data report dictate where the market thinks the Fed is going to move next. And I do think that this is going to be very important. Data has always been important for the markets, but even more so now if we start seeing a Fed that's departing from forward guidance.

George Mateyo [00:13:44]

So I'm glad you mentioned AI is part of the overall focus of the Fed, not only in terms of the productivity benefits that could accrue down the road, which I think is still significant and probably to be determined, frankly. But at the same time, they're also mindful of inflation and the impact that AI spending is having on some of the inflation numbers that we also look at as well. Steve, if I think about what you might be thinking about with respect to equity prices and kind of what's happening inside the equity market, it's curious to me that we've probably seen now at least a few months of rotation from some of the companies that initially were building out this infrastructure, spending gobs of money, frankly, on AI-related stuff, we'll say. And now the companies that are probably-- those companies now are betting that there are some price pressures there, right? They've actually started to raise prices. They're seeing their margins erode. They're seeing their cash flow erode. And now other companies like the semiconductor companies we talked about in prior conversations are really kind of taking some of that market share, if you will. So how are you thinking about AI as relates to the equity market and portfolio positioning within your portfolios?

Steve Hoedt [00:14:49]

Well, really, it's come down to that whole game of who are you investing in? Are you investing in the hyperscalers who are spending on this to be able to provide services or are you investing in the infrastructure? We've had kind of a couple of different phases to this so far. And what's been interesting to me is that after seeing semiconductor stocks basically be the be-all end-all for the market over the first six months of the year, but really accelerating in earnest in Q2, since June 25th, we've seen actually the MAG 7 outperform the market by 1,000 basis points, so that's 10%. So we've seen a bit of a rotation back. So it seems like this earnings season is going to be quite interesting. I think that the... Semiconductor stocks are likely going to beat expectations, but will they beat expectations by enough? We saw Micron beat expectations here a couple of weeks ago, and the stock actually reversed off of that. So you're starting to get to a point where the market maybe has marked up the expectations of how great this is going to be. And when we're seeing a company like Meta say, hey, we're going to build a business like Amazon Web Services to sell excess cloud capacity, it starts to make you wonder, are these guys overinvest? Have they overinvested in the in the infrastructure? So and there's a whole host of things going on. I'll tell you, George, the thing that keeps coming back to me about the market is we have seen this this idea that the market's broadening out, that it's more than just the tech stocks here lately, which is the pet has been a theme that we've been harping on for a while, that that would be healthy for the market. And we have seen that we've got earnings that are going to start to come out next week. You've got the large financial concerns that will be out toward the end of next week. The earnings for the S&P 500 came into 2026 on a forward 12 month basis at 310. We're at 371 right now. Our forecast is that we exit the year around $400 for the S&P. And the thing that we've talked about on this call and in every other forum that we have is that when that red line for the S&P 500 is going up and to the right, meaning the earnings line on the chart that we use. Over and over and over again, that it's really hard to bet against the market. And when you look at where the earnings line is likely to go over the last six months of the year, it's going to be up and to the right. So I think that we're likely going to see some backing and filling as we get some rotation maybe out of the hot semiconductor stocks, maybe a little bit back into the MAG 7. But I'll tell you, if people rotate weight into the MAG 7 and out of semis a little bit, that'll help drive the market higher too, because those MAG 7 names are 40% of the S&P 500. So we've got this broadening out theme that has been good. And we've seen the equal-weighted market moving higher. We've seen small-cap stocks moving higher. I think as we head in the back half of the year, we think things are likely going to continue to play out favorably for equity investors.

George Mateyo [00:18:16]

To what extent, though, Steve, do you think that earnings might be a little bit overextended, too? I mean, we can talk about valuations being extended, but is there a concern that maybe earnings themselves are overextended to some extent?

Steve Hoedt [00:18:28]

I think that's the truth, George. So when you look at valuation, valuation has come back in on the forward multiple. Late last year, in the fourth quarter, we were up around 23 times forward earnings. And right now, we're hanging out right around 20. So we've taken three turns out of the market multiple. The long-term average on forward earnings is not much further south from where we're at. It's around 19, 19 and a half. So we're around a normal multiple, frankly. And When you look at earnings, it does feel like, you know, when people talk about a bubble, where's the bubble? Well, maybe the bubble is in earnings. It's not maybe in stock prices right now. And when you look at some of the AI driven earnings numbers and, you know, you've pointed out before, you know, when you go start to go under the hood of the mag seven earnings numbers and you look at the other line and all these kind of things, it does kind of give you some pause that maybe the earnings numbers are not as sustainable as what people think they are. So, we'll have to see how that plays out over the course of the year. I don't disagree with your premise that that it does feel like the earnings numbers are not just pure earnings numbers that are coming straight from companies selling a product like there's other stuff that's kind of under the hood where you've got gains because of public offerings and other things like this.

Brian Pietrangelo [00:19:59]

So speaking of public offering, Steve, how about a comment or two before we close the podcast on today's?

Steve Hoedt [00:20:05]

Yeah, so SK Hynix has listed some ADRs here in the US. SK Hynix is one of the two largest memory makers in South Korea. If you've taken a gander at the KOSPI index or the South Korean stock market this year, it's kind of gone crazy. It's been driving the returns in the emerging market indices. because really it is a market that's driven by a couple of stocks that are levered to this memory theme. It's like if you can imagine Micron and those names basically being 50% of the market, that's what South Korea is. I mean, they decided to tap U.S. liquidity by listing some ADRs here. We're seeing that offering be fairly well received today and we are seeing tech stocks in the U.S. sell off a little bit. My guess is that there's some rotation where people are raising some capital in some of these semi-names that they've made a lot of money on here in the U.S. and now accessing SK Hynix because Hynix is probably a better quote unquote pure play than some of these other ones that maybe people have been playing other than Micron. So something to keep an eye on now that that's easier for people to access here. But at the same time, I tell you, we don't recommend that for any of our listeners or our clients at this time.

Brian Pietrangelo [00:21:26]

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.

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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, June 26th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. And if you're an avid listener, you know that we were off last week in observations of the Juneteenth holiday, In addition, that past week we also celebrated Father's Day. Happy Father's Day on a belated basis to all the fathers out there. I certainly enjoyed mine over the weekend. Also back on Sunday, June 21st, we celebrated the marking of summer, the new season, also known as the summer solstice. It represents the astronomical first day of summer in the northern hemisphere when the globe is tilted to the sun that creates the longest day in terms of sunlight during the day. And also this past week we acknowledged the passing of two individuals that were both icons in their industry, one in the music industry and one in the financial services industry. And both are very interesting to me because I am in the financial services industry and I am a big fan of the music industry. And first we have the passing of Alan Greenspan, obviously well-regarded as the former Fed chair starting in 1987. Again, well-regarded, significantly influenced the policy during his tenure as Fed chair and again passed at age 100. He's probably most known for his long and winding press conferences and his speeches at the Fed, but more importantly, coined the phrase irrational exuberance back in the late 1990s when the market was roaring. And second, Clive Davis, the music industry icon, died at 94 this past week, and I am a big fan as well, not only because I'm a rock'n'roll fan, but Clive Davis obviously did significant work in bringing many artists to the table and to the forefront of the industry. Also well-regarded and honored here in Cleveland in the Rock and Roll Hall of Fame. In addition, I recently watched a documentary on Clive Davis and thought that the story was fairly compelling in terms of a resilient career and overcoming many different hurdles to get to where he was and finally again passing away at 94. So 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, and Rajeev Sharma, Head of 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 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 fairly light, but we do have three key updates for you, beginning with first, the initial unemployment claims for the week continue to remain stable. We'll also talk to our panel about numbers two and three, which are the update for GDP for the first quarter of 2026, and it is the third estimate that we received yesterday from the Bureau of Economic Analysis. And then number three, we also received the PCE or Personal Consumption Expenditures measure of inflation from the Bureau of Economic Analysis for the month of May. And also, since we were off last week for the Juneteenth holiday, it's also important that we have a commentary and a dialogue with Rajeev and the team as well about the Federal Open Market Committee meeting that occurred back on June 17th. Now the committee meeting was important for many different reasons, the most important one being is that it was the first or inaugural meeting for Fed Chair, newly appointed, Kevin Warsh. The committee held the Fed funds target rate range at 350 to 375, so not a big surprise there. It was pretty much almost a guarantee that they would hold rates constant at the meeting, and they did. So the bigger issues for opportunities for discussion are the summary of economic projections that come out every other meeting and did come out for that meeting as well, with some adjustments, which we'll talk about, and also the press conference, which is a little bit different of a style from Warsh, differing from Jay Powell, and the policy opportunity for the committee to think about what forward guidance might mean in the next coming four meetings on the second half of the year. We'll also get an update from George on the Iran war. Almost close, but again, not quite there yet with some setbacks and some volatility this week. And we'll also talk with Steve in terms of what's happening in the market and the volatility we experienced this week as well in the stock market. So let's cut right to Rajeev to start the conversation with the Federal Open Market Committee recaps, some of the key items and Rajeev's thoughts, and we'll bring George into the conversation as well. Rajeev?

Rajeev Sharma [00:05:25]

Well, yes, we did have an FOMC meeting last week, and it was more eventful than the market anticipated. Firstly, everyone expected another pause by the Fed, and that's exactly what we got. But the Fed held Fed funds rate at three and a half to three and three quarters percent in a unanimous vote. But the market really wanted to focus on what Kevin Warsh was saying as he became the new Fed chair. He took over the new Fed chairmanship, and everybody wanted to hear his tone, what he was going to really bring to the market. Earlier in the year, Warsh had publicly aligned himself with an easing narrative. So the market really kind of expected that maybe Kevin Warsh is going to come in there and talk about a softening stance by the Fed. But instead, what we got was a more hawkish hold. Many read this as a FOMC reasserting their central bank independence. So, the hold itself was not surprising. What was, was the tone in which the hold happened for the Fed. It was more hawkish than the markets expected. Inflation expectations through the summary economic projections were revised upwards. If you look at inflation, they revised their expectations to 3.6% for 2026, compared to 2.7% that was estimated back in March. economic growth, unemployment, those rate projections were modestly revised downward, but what the market really focused on was inflation numbers. Now, Warsh has a long argued that the Fed underestimates inflation and its stubborn persistence. If you focus on the dot plots, nine policy members, they expected a rate hike would be appropriate at 2026. So the median dot was moved up to 3.75%. The market immediately gravitated to this as expecting a rate hike as early as October and maybe one by March of 2027. So essentially, the conversation of rate cuts is completely off the table now. It's also important to note that Warsh did not supply a DOT. He basically made it pretty clear that as far as he's concerned, DOT plots are a fine source of guidance, but he doesn't want to provide that. He encouraged other policy members to provide their estimates, but he does not really believe in over communicating to the market and he's not really heavily focused on forward guidance. So in the statement, we saw forward guidance removed. We saw the committee delete language that implied an easing bias, but really emphasis of the statement was on price stability. So in his first appearance, I really do think that the core message was that inflation has run above target for 63 consecutive months. And he said the committee is, quote unquote, unambiguous and unanimous in its commitment to bring inflation down. And I think that really took the market by surprise. I think the market really started to recalibrate as far as moving away from rate cut expectations to rate hike expectations. And we saw that in the front end of the yield curve. And we saw yields move pretty high in the front of the yield curve and a flattening move.

George Mateyo [00:08:44]

So I think the other news about the Fed regime this past week that deserves noting is the passing of Alan Greenspan, the former Fed chair. And I think he's the second longest tenured Fed chair serving just under 19 years as Fed chair in a pretty similar moment in time. And I think it's kind of interesting. I mean, he served, of course, five terms under 4 presidents, which is quite remarkable in the sense that, of course, there's different political regimes that come and go, but he actually withstood a lot of that, even though I think he was a pretty political character from what I recall. But I think economically, he had made really two great calls in the sense that he tried to acknowledge inflation, address it, and raised interest rates pretty aggressively in 1994, I believe, which actually kind of stepped out inflation then. And the market didn't respond too favor to that, although the market didn't do too badly either. But probably more notably is that in the late 90s, of course, when we're seeing kind of parallels from that period to today, Chair Greenspan at the time decided to leave interest rates pretty much untouched in the sense that there was, of course, a asset bubble forming in the form of the NASDAQ and the tech sector. But he was pretty convinced that productivity essentially would be able to kind of withstand and overcome some of the inflationary pressures And that proved to be pretty precedent. Of course, the bubble did burst ultimately, but I think for the time being, it was a pretty accurate call. And at the same time, I think it's also notable that he really changed the communication strategy, which is something you picked up on around Warsh, our current Fed share, in the sense that prior to Greenspan's arrival, the Fed really didn't say much. They would actually just cut or raise interest rates, and the market would have to figure that out after they did that. And Greenspan was pretty dogmatic in changing that, which is quite remarkable given kind of his background and thinking about Fed policy prior to his tenure as Fed chair. But I think it's important, again, we need to know who he was and how we thought about things, because I've already seen Rajeev, and I'm sure you have too, some pretty interesting parallels between what Greenspan instituted around communication strategies, around the overall way in which the Fed is managed, and how it actually responds to the economy. And again, maybe there's a further parallel we'll have to see or how it's played over time, of course, as to whether or not that productivity thesis that I talked about earlier is actually replicated again this time. But if you think, Rajeev, I guess the question I would have for you is with the focus now on probably smaller or lesser communications from the Fed, we saw some evidence that already in the Fed statement that came out last week, which was much, much shorter. Do you think that actually introduces more volatility to the markets or are the markets going to be able to kind of respond and kind of anticipate their own, make their own conclusions about what to anticipate from the Fed and then take the direction once the decisions are made. So how does this alter, how does this alter the bond market volatility in your view?

Rajeev Sharma [00:11:38]

Great question, George. And I really do think that the market has to adjust to this new Fed regime. This is not just the passing of the torch and status quo of Fed chairmanship. I do think Warsh is going to create his own regime. I think he's going to come out there and really shake things up and the market is going to have to adjust to that. And not having forward guidance is a double-edged sword. I think many people love. The fact that we got the dot plot, the market moves on the dot plot, we get the summary of economic projections. The market moves on that. I think right now the market has to adjust the fact that we're going to get. If Fed chair Warsh wants less communication. We're going to get less communication. I think he's going to get what he wants the Fed makeup to be like, less narrative from the Fed members, less press conferences, less information. And I think that's going to add to near-term volatility. And I don't think the market is really ready for that yet. Market has really gotten adjusted to, okay, let's look at the dot plot, we'll adjust to that, and then eventually the data is everything, whatever inflation reports we get. The market moves towards that. Now it's going to be really squarely dependent on the data, the economic data. The market's going to parse through that. It'll be a short term volatility move for the market, in my opinion. I think the market will always eventually adjust to the information that's being provided. But to your point about Alan Greenspan, it's very similar because I heard somewhere that Alan Greenspan used to have in his office two headlines from the same day. One would say Greenspan is a hawk and one would say Greenspan is a dove on the same day, different newspapers. And I think that they used to post that in his office. And I think that Warsh kind of models himself on that too. He doesn't want the market to know exactly what the Fed is thinking because, you know, guidance should change and economic reports impact that. So I think he's going to really rely on the data and I think that's going to cause near-term volatility in the market.

George Mateyo [00:13:55]

on that point, I think one of my favorite Greenspan's quotes was when I think a congressperson was asking him about his views of things. And he said, if I seem clear to you, must have misunderstood what I said, which I thought was pretty interesting and kind of comical at the same time. But anyway, moving on, I think, you know, in terms of volatility, Steve, we've seen some interesting volatility in the equity market, of course, as we always do. I think what's notable to me in the past week or so has been the rotation, the further rotation away from the Magnificent 7, which is something we've talked a lot about on these conversations and other places to kind of recognizing that there are opportunities beyond just seven stocks that really make up a big portion of the index. And we've acknowledged that, and we've talked about maybe kind of emphasizing the forgotten 493 versus the MAG 7, as they're called. They're no longer as magnificent. They've really certainly kind of rolled over, it seems like, to me anyway. But what's your take on kind of what we're seeing underneath the hood in the equity market, and how should we be positioned going forward?

Steve Hoedt [00:14:50]

Yeah, George, it's been a fascinating week. I mean, the new most important stock in the world reported earlier this week, and that was Micron Technology, which for those of us who've been around the block, we remember this company as being a crazy cyclical company back in the 1990s. And it's kind of been the same thing for the last, 30 years, up until about a year ago when it decided that it was an AI play and things have not been the same ever since. They reported earnings that blew away consensus expectations earlier this week across the board. Stock made a new all time high, but the price action within that day's trading was incredibly interesting. So, we opened at a new high, we traded down almost all session before kind of closing a little bit lower than unchanged. And, you know, as a technician, when I see price action like that, it starts to get me thinking that Whatever they said was great, but it might be as good as it gets for investors, at least here over a near-term perspective. We've come a long way really fast in these memory names. Micron itself is up 900 bucks this year, up from 285 bucks at the turn of the year. And look, these names have been driving not only earnings gains for the S&P 500, these are where people have been rotating out of, at least in a tech space, out of the MAG 7, which we've seen for months and months. But we've also continued to see performance improve in the equal weighted S&P 500 index, George, because we've seen that index move to new highs. We've seen continued strength in small caps, which I think a lot of people have been looking at and going, waiting for that one to come around for a really, really long time. But we're seeing some strength there. So, when I see a market that's broadening out in terms of seeing equal weighted and small cap stocks doing well, while the MAG 7 is acting as a source of funds for all kinds of stuff, I think in general, that's a fairly healthy market backdrop. But at the same time, I look at some of the action that's gone on in these tech stocks, and it is pretty frothy there. And you only have to look back a week before that to see the SpaceX offering to look for signs of froth, right? And we've seen that trade all the way back through to the IPO price. So a lot going on. I think when you look at the set up for the market here. You know, earnings continue to go higher. It's being driven by these tech names, hyperscalers, all that kind of stuff. The backdrop there is favorable. Price action right now, though, if you look at the S&P 500, we're dangerously close to the lows that we set in early June. We bounced a couple of weeks ago, but failed to make a new high. And it's not lost on me that we're heading into the summer doldrums here and that maybe we're going to go through a period of digestion where we digest some of these gains. And I don't think investors should just expect it to be a straight line, a rail up into the right for the next six months. I'm in the camp that if you get earnings gains to continue the way that they are through the through the course of the year, we're likely to have the market be higher at the end of the year than where we're at today. I think 8,000 is a reasonable number for a $400 earnings line for the S&P. But again, don't expect it to be a straight line to get there. There's going to be backing and filling in summertime when we have low trading volumes. I think it's a perfect time for the market to take a break.

George Mateyo [00:19:05]

How confident are you, Steve, in the earnings outlook, though? You mentioned that, as you said a couple of times, if earnings hang in there, if earnings continue, if earnings do this and that, but how confident are you in earnings not only for the next, say, six months, but as you look into the next, look into your crystal ball for the next 12 months, say?

Steve Hoedt [00:19:22]

Well, when you look at the number for next year, the number for next year is going to be significantly lower than this year. If you look over the next three quarters, you're going to get reported the markets forecasting in the low 20s for earnings growth. And I think then you have a step function down next year to the low teens. The low teens is the typical forward number for the market. And then you typically end up with those numbers getting cut and seeing them end up in the high single digits. That's the normal path of travel. This year has gone counter to that. We've seen something unheard of kind of where we've had this massive step function higher. I don't think anybody came into the year and had 25% earnings growth on their bingo card. And that's kind of driven some of this market performance that we've seen. I think that you, you know, are they going to be ephemeral and just disappear? I don't think so. But it's not lost on me that these hyperscalers are in large part dependent on access to reduced market on the credit side to be able to sell and raise debt in order to spend this money because they're not going into the market selling equity largely to do this. They're raising it in the debt markets. And so far, the debt markets have been more than amenable to funding the spending that's going on here. So unless and until something happens that causes that funding mechanism to go away, I think that the earnings outlook, George, is largely going to remain intact. And again, we're seeing this broaden out too, because like industrials are reporting good earnings numbers. We're seeing it pretty much across the board in the S&P 500. But the step function is being driven by the tech stuff, no doubt.

Brian Pietrangelo [00:21:13]

Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And before we close the podcast today, another program note, we will be off next week for the observation of the 4th of July. So happy Independence Day in advance to all of us as citizens and certainly to our country, the United States of America, and the last 250 years, the celebrations since we became independent in 1776. Now, over those 250 years, it's been a bumpy ride, but mostly good, and in our opinion, or my opinion, it's still the best country in the world, and we should continue to celebrate our independence. So, if you have an opportunity to have a great celebration, fly the flag, and always... remember that freedom is never free, and we are protected by those who defend our country, and we thank them in advance. So thanks to our listeners for joining us today, and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information And we'll catch up with it in two weeks 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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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, June 12th, 2026. I'm Brian Pietrangelo and welcome to the podcast. another robust week if you are a sports fan again the Stanley Cup NHL competition in full swing we've also got the NBA finals with some great competition there but also more special than others we have the FIFA World Cup underway with many games friendlies and then also on to the competition round soon and next week also on a patriotic note as we head into the weekend on Monday June 14th we celebrate Flag Day Flag Day is an annual observation created in the United States back on 1777, I should say, in a resolution by the Second Continental Congress, and it honors the adoption of the first official U.S. flag known as Stars and Stripes, which originally featured 13 alternating red and white stripes and 13 white stars on a blue field to represent the original colonies. So just like other holidays for the United States, it might be a great idea to fly the flag on Monday in observation of Flag Day. 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, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic data, we've got three key economic releases for you this week, two on inflation and one on employment. Other than that, it was a pretty light week for economic releases. So first up we have the announcement from the Bureau of Labor Statistics on the Consumer Price Index known as CPI for the month of May. Not a surprise here, the numbers did increase a little bit above expectations for the all items came in at 4.2% year over year for the month of May. and that was above last month. When we take out food and energy, it was up 2.9% over the last 12 months. Again, up a little bit from the prior month. Not a surprise there that some of the drivers of that increase were energy prices and consideration of oil. In addition, the following day we also received the producer price index, which showed again significantly elevated data for the producer price index for final demand rose significantly in May, roughly the largest increase we had seen since November of 2022. If we take that in terms of the overall annual rate, we look at the largest advance for the 12 months ended in May, moved up 5.1%, the largest 12 month increase since October of 2022. So again, a lot of inflation data continuing to show elevated numbers as a result of oil increases and other derivative factors. And we will continue to take this into consideration for what this means for the economy and the Federal Reserve. And 3rd or finally, just yesterday as well, the weekly initial unemployment claims report came out for the week ending June 6th, and it came in at 229,000 for the week, which was mildly above the week prior, but again continues to remain stable for mostly the last 2 1/2 years in this arena. So ultimately we take into consideration some small bit of inflation data plus some jobs data as we look forward to the Federal Open Market Committee meeting next week, which will be the first for Kevin Warsh as the new chair. In other news, we have more news on what's going on in Iran with some back and forth with Iran and the United States on a military action as well as something close to a memorandum of understanding. We'll talk to George about that. And today, Friday, June 12th, is the launch of SpaceX IPO. We'll get Steve's take on that as well as a general conversation with Rajiv on what's happening in the bond markets. So, George, let's turn to you first to get your quick update on what's happening in Iran as well as what's happening in the economy relative to inflation that we just discussed. George.

George Mateyo [00:04:52]

So, Brian, there's lots of process this week with respect to the situation in Iran, and I think to some extent not too much has changed, although it does need noting, I guess, that we kind of started this week with a likelihood or a possibility anyway of some re-escalation, if you remember where we were just four or five days ago or so now, Monday or so, late Sunday night last week, there was some thought that maybe we'd probably see bombs going off again and missiles being dropped and maybe the risk of a broader conflict as well. But in the past few days or so, there's been a lot of rhetoric and maybe this somewhat nullifies the concept of a ceasefire. One could debate that, I guess, in many ways. But as of Lately yesterday, on Thursday afternoon, it seemed to suggest the president had struck a deal. He talked about this memo of understanding that suggests that maybe the two parties have come together. Incidentally, the Iranians have not responded. And furthermore, I think the Israelis have kind of backed away from that too, in the sense that they said they were somewhat surprised by the president's comment that things were pretty much all wrapped up, I think was the quote. So I think it's fair to say that there's still a lot of uncertainty with the situation. I think it's fair to say that we probably are getting closer to some type of thaw. While this is kind of the ultimate end of the conflict, I think it's far to be seen. But I think it's also fair to say that neither party want to see a real protracted conflict. In other words, when we start to see tensions a little bit, they're very quickly brought down again. So maybe it's the theory of re-escalating to de-escalate. And that probably provides maybe Some context for how we might think about going forward is since there's kind of an on again, off again debate about this. And I think the bigger question, of course, is really the downstream economic impact from this that will probably take many weeks, if not months, to really sort through, even if there is a final resolution reached. So while we can all play geopolitical strategist in our spare time and think about what this might mean, I think for most portfolios, it does suggest that there's probably getting some volatility, we saw this, of course, this week. in the sense that the markets were a little bit soft beginning of this week, and then they rallied pretty strongly in the back half of the week once they thought the markets kind of responded to some thoughts that maybe we would see some relaxing of tensions. The bigger question, I guess, as I think about those, we think about once we get through this noise, of course, has to do with inflation. And some of the numbers out this week as we've been arguing now for quite some time, will remain a bit sticky. The overall, I think, producer price index, which looks at corporation inflation trends and so forth, that was a pretty hot report in the sense that we saw a pretty big jump across the board in terms of where we saw inflation in the energy sector. But beyond that, energy, of course, is the big item. But certainly, we're starting to see price pressures from the continued build out of AI. Capital spending, of course, is really a big part of that. And that was also quite elevated in many factors as well. I think it's also fair to say that things like airlines and some foreign demand from airlines especially was kind of called out in terms of inflation. Maybe that's the World Cup or other things, it's hard to say, but of course, there's also food inflation. We've seen tariffs now can be kind of applied as well. So altogether, I think inflation is still the issue that markets have to contend with. And as far as we see, it doesn't seem like it's coming down rapidly. So the thing that is kind of interesting is at the same time that we have a new Fed share, we have a new maybe Fed regime. The Fed incoming Fed share is probably on that keen on tightening rates and taking them up. But at the same time, I think at some point he has to address inflation. So we'll have to see how that plays out. Rajiv, maybe I'll get your thoughts on that in the sense that of course next week is an important week in the sense that it's Kevin Warsh's first meeting as chair. So how do you think about all this? What do you think the Fed might be thinking as well? And what do you think it means for the bond market, broadly speaking?

Rajeev Sharma [00:08:55]

No, George, it's very interesting. Maybe Kevin Warsh's first meeting. I think all eyes will be on that. The latest CPI and PPI reports that you pointed to, they really do push the Fed further away from any rate cutting bias. It keeps the Fed in more of a hawkish bias mode. Headline inflation is almost entirely being driven by the spike in energy prices and the Fed has to keep all that in mind and its inflation target in mind as well. So the Fed can't ignore the CPI and PPI reports. Core CPI is still somewhat close to the Fed's target. But the PPI jump is then, that's the number the Fed will be more concerned about amongst two reports because that's going to put a lot of pressure on consumer inflation later, which will impact the PCE report. And that PCE report is the one that the Fed is most sensitive to when making monetary decisions. PCE at 3.8% currently is still far above the Fed's target. And you mentioned PPI. I mean, that was the fastest move we've seen since 2022. These kind of moves forced the Fed to stay restrictive, and I think that makes Kevin Warsh's debut even more complicated. I think if you step back and think about overall monetary policy, you have Kevin Warsh and the Fed has to look at the latest inflation reports. These point to the fact that the Fed is not going to be cutting rates anytime soon. The Fed is also not likely to hike rates at next week's FOMC meeting. So these reports kind of give the Fed and Kevin Warsh some cover that they need to pause at next week's Fed meeting. And the Fed would need multiple months of data to assess before making really any decision on which direction they want to go. The markets, meanwhile, they should continue to expect rates to stay higher for longer. That keeps pressure on treasury yields and will keep them elevated, particularly in the front end, which is most sensitive to monetary policy. My anticipation of next week's FOMC meeting, yes, Kevin Warsh will be there. I anticipate him to have a press conference. We will get the summary of economic projections. We will get the latest dot plot. It's going to be very interesting to go through that data, even if. If the Fed is going to pause next week, which is expected, I think those pieces of information are being very important for the market. The dot plot is going to show us how many Fed members are dissenting right now, how many think that we should raise rates, how many Fed members think we should go status quo. That's going to be really important because if you think about what Kevin Warsh's future is going to be and what his inclination is going to be as far as monetary policy, he's going to need to build consensus in the Fed. You’re going to need voting Fed governors that are going to be on his side, whatever direction he starts to lean towards. And I do think, obviously, the Fed is going to pause next week. But what investors should really look out for when they see the meeting or when they hear from the meeting next week is the language of the Fed statement on the 17th of June when that report, when that statement is released. You should expect to see more hawkish language. You should expect to see a gradual shift in the language from an easing bias to a tightening bias. Investors should really look at the statement and start to see some pushback against the expectations of rate cuts and what the Fed is anticipating about energy prices and its impact on inflation. All these little pieces of evidence that we'll see in the statement, the press conference, the summary of economic projections are all extremely important. They will be market movers. Right now, the market does not expect the Fed to make any real moves at next week's meeting. The market does not expect the Fed to really do anything at the July and September meeting either right now. But the market is still putting close to 80% odds that we will have a rate hike by the end of the year. Now, if we look across the pond, the latest ECB action was very clear. It was a hawkish pivot. The ECB, the European Central Bank, they delivered their first rate hike since 2023 and they lifted all three key policy rates by 25 basis points. And their statement was very clear. It was all about energy driven inflation. So the move really makes the ECB the first major central bank to resume tightening in response to the energy price surge that we've seen from the war in the Middle East. So I think these things are very important. I mean, if you take another step and change Change tracks a little bit and look at credit spreads. It was a very interesting week on credit spreads. We saw absolutely nothing. Spread stayed exactly where they started the week out. There was no real big moves in credit spreads for both investment grade and high yield. In a way, that's a very good thing because it shows that that's a very healthy market. The corporate bond market's very healthy. Deals are getting done. Investor appetite is still there. You still want to keep an eye on some kind of investor complacency. But I really do think it's important for the credit markets to continue to be well-functioning, liquid that does help other risk assets as well.

Brian Pietrangelo [00:13:46]

Hey, Rajeev, if you think about the Fed, a couple other comments for our listeners as we'll be off next week. is that the dot plot no longer includes Stephen Myron all the way at the bottom. And it'll also be a new dot with Jay Powell, so to speak, in a different chair seat because he's no longer the chair. He's just a Fed governor. And also we talked about last week's strong employment report, which for the dual mandate puts even more pressure on a possible rate increase. Any color there?

Rajeev Sharma [00:14:12]

Yes, I do think the dot plot is going to be extremely important. You don't have Stephen Myron anymore who's really calling for rate cuts. He was the loudest voice that was calling for rate cuts. you're gonna start seeing a gradual shift towards at least being more neutral and more neutral in monetary policy. You'll start seeing some voices that are saying that we should have a rate hike by the end of the year because of inflation being so stubborn and moving in the wrong direction. We're not seeing any disinflationary trends. So that's gonna be an interesting piece of information. And again, as I mentioned, to build consensus at the Fed, that dot plot's gonna be very important. It'll show you exactly How many members are on the side of being hawkish? How many are dovish? The dovish voices have definitely gone away with Steve Meyer leaving. In fact, we even had Christopher Waller come out and say that he's also pointing towards we should be more neutral in our bias. So I think it's pretty very important.

Brian Pietrangelo [00:15:06]

So Steve, let's turn to you on the equity market in terms of some pretty interesting volatility this week a little bit and then the overall arching day today for the launch of SpaceX IPO.

Steve Hoedt [00:15:18]

Yeah, it was an interesting week. we pulled back and we bottomed earlier this week, right around the 50 day moving average. And we had talked before how with the market having basically been on a one way St. for the last three months, that we wouldn't be surprised to see a pullback. And it was good to see the decline stop in a shallow place at the 50 day. We turn around and we're bouncing right now. We did see volatility pick up, but what was really interesting to me was, for all the talk about the volatility explosion last Friday, we went back to, guess what, the long term. averages. 19 1/2 is the long-term average. We got as high as 22 during this explosion of volatility. And right now, today, we're at 1903. So we're sitting slightly below the long-term average for volatility. So I think people have gotten used to this idea that volatility is supposed to be low. And the truth of the matter is that what you see right now is really average. What really struck me this week about overall equity markets was that as we sit here this morning, we have the equal weight S&P 500 moving to a new all time high. So we're seeing equal weight outperform the broad market cap weighted index For I think it's one of the one of the first times in quite a long, quite a long while. I know George has talked about the broadening out and seeing things change here as we've seen the mag 7 we talked about on our national call earlier this week. It has been kind of a laggard since last October. That looks like it's continuing here. And you know, when you think about Mag seven weakness, it's a good segue to talk about SpaceX. You know, SpaceX priced its IPO last night at $135. Looks like it's going to open at some point today. Might be three o'clock this afternoon, might be noon, could be anytime between now and then, which is normal, by the way, for our listeners to have these big IPOs be delayed in opening on their first day of trading. looks like it could open north of $170, which would be great for those folks who managed to get shares. My understanding was there weren't too many people other than large sovereign wealth funds and a few large global funds that got shares. I think you're going to see people raising cash by selling stuff that is similar or has a similar exposure profile in order to put capital into that name. if people want to do so, which means likely you'll see some selling pressure on Mag 7, probably see selling pressure likely on Tesla, which is, you know, obviously you've got the Elon Musk true believer crew who is in Tesla, if they want to sell some of that to buy SpaceX, that will be happening too. So I think that what we see here is this idea that broader market exposure is probably the way to go right now and not be focused so much on these mega cap names that you're going to hear lots and lots about in the financial media over the coming few days.

Brian Pietrangelo [00:19:02]

Thank you, Steve. Appreciate the update. George, any closing remarks for our listeners today?

George Mateyo [00:19:07]

Well, as always, Brian, there's probably a lot we could summarize. Again, the way we kind of see things playing out is what Steve just said. is that the market continues to broaden out. And that actually is maybe a theme that we've talked about now for over a year. And it's good to see that finally coming to fruition to some extent because it's something we have been concerned about. We have been concerned about this rising level of concentration, meaning when you have a broad market narrative, and this is not to say we're bearish on AI or artificial intelligence as a theme, but when you have this one dominant theme that really takes hold of the overall investment landscape, It's important to understand that when that narrative does shift for whatever reason, as Steve pointed out, maybe it's a new company coming public and it really takes a lot of the energy from other parts of the market. Maybe it's the thing itself becomes a little bit tired and maybe it becomes somewhat old, if you will, and stale. It is important to stay diversified. And that's, again, something we've talked about a little bit, frankly a lot. It's a cliche to even talk about diversification, but it's one thing I think that up until the last year or so, it really was a little bit underappreciated. And I think now we're starting to see the benefits of really maintaining that focus on and staying diversified and also really kind of sticking to your knitting, right? I think there's probably an argument that some people are chasing performance a little bit in these markets. And I think to some extent that usually turns out to be a fool's errand in the long run. So staying diversified, staying disciplined, I think is going to be really important in these market environments. But overall, as we talked about, it's still staying invested, right? That doesn't mean to abandon your overall strategy because as Steve pointed out, and as Rajeev mentioned too, there's still a fair amount of tailwinds behind the economy and those things can really support earnings, which I'm sorry, which can in turn support stock prices. So that's how I would summarize where we are right now.

Brian Pietrangelo [00:20:54]

Well, thanks for the conversation today, George, Steve, and Rajiv. We appreciate your insights. And before we close the podcast, a quick program note, we'll be off next week on June 19th in observation of the holiday known as Juneteenth. So thanks to our listeners for joining us today and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you in two weeks to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

We gather data and information from specialized sources and financial databases including but not limited to Bloomberg Finance L.P., Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange (CBOE) Volatility Index (VIX), Dow Jones / Dow Jones Newsplus, FactSet, Federal Reserve and corresponding 12 district banks / Federal Open Market Committee (FOMC), ICE BofA (Bank of America) MOVE Index, Morningstar / Morningstar.com, Standard & Poor’s and Wall Street Journal / WSJ.com.

Key Wealth, Key Private Client, Key Private Bank, Key Family Wealth, and KeyBank Institutional Advisors are brand names used by KeyBank National Association (KeyBank). Key Wealth and Key Private Client are also brand names used by Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor.

The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA).

Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), 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 and it should not be used as a basis for investment or tax planning decisions. 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.

The summaries, prices, quotes and/or statistics contained herein have been obtained from sources believed to be reliable but are not necessarily complete and cannot be guaranteed.  They are provided for informational purposes only and are not intended to replace any confirmations or statements.  Past performance does not guarantee future results.

Brokerage and certain investment advisory services are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor. Insurance products are offered through KeyCorp Insurance Agency USA, Inc. (KIA) and underwritten by third party insurance carriers not affiliated with KIS. KIS and KIA are affiliates under the common control of KeyCorp. To learn more about KIS’s investment business, as well as our relationship with you, please review our KIS Disclosure page. Check the background of KIS on FINRA's BrokerCheck.

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, June 5th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As you might be able to tell by my voice, allergy season is in full swing as I am experiencing a little bit of an allergy relative to cottonwood trees. At the same time, it is exciting because we know that summer is approaching very, very quickly in the next two weeks. Also on a fun fact basis, today is National Donut Day. So those of you that are fans of donuts, be sure to have one at your favorite establishment. Mine happens to be chocolate frosted. 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, and maybe even their favorite donut. Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we have 4 economic releases to share with you today, beginning with some production-oriented information, and then we'll cover it on the employment side. So first up, according to the Institute for Supply Management, the manufacturing index came in an expansionary category for 54 as they're reading up from April. So May pretty constant at 54, and this was the 5th consecutive month of expansion. Now this continues to be good news. That is the highest reading since May of 2022 and if you recall us from previous podcasts over the years, the manufacturing side of the economy had been in contraction for almost five years. So having 2026 show 5 consecutive months in terms of manufacturing is pretty good. On the services side of the economy again came in at 54.5 which was the 23rd consecutive month of overall expansion and this continues The roughly again five-year run on this side of the economy where services has been expanding for that considerable amount of time. And second, we have Wednesday's report which came out known as the Beige Book, which is the Federal Reserve's report for activity across the 12 districts in advance of the upcoming Federal Reserve's Federal Open Market Committee meeting on June 16th and June 17th. The report showed that economic activity increased at a slight to moderate pace for 10 out of the 12 federal districts while one district reported a slight decline and one reported no change. Now what's interesting to me is the last few months that we've been reporting this information it seemed to be like a 50-50 split and now it's getting a little bit better to 10 out of 12 districts showing increased or slight to moderate pace of economic activity. On the consumer side, there is evidence that higher-income households remain resilient and less sensitive to the price inflation increases, while middle-income households and lower-income consumers showed greater financial strain. Some of that financial strain shows itself in increased use of credit cards as well as fewer retail visits and stronger demand for necessities. And third, earlier in the week we got the JOLTS report from the Bureau of Labor Statistics, which is the Job Openings and Labor Turnover Survey report, which showed for April the job openings part of that report came in at 7.6 million job openings from employers, which was up from the prior month's 6.9 million. And finally, or 4th, the report that came out just this morning at 8:30 (AM EST) was probably the bigger news item for the week and that is the employment situation where we get new non-farm payrolls and the unemployment rate. For the month of May, there were 172,000 new non-farm payrolls created in the United States and the overall unemployment rate remained unchanged from the prior month at 4.3%. So the 172,000 new jobs was a greater number than expectations. And in addition, if you look back, the revisions for the months of March and April were revised up in a positive way with 93,000 more jobs than originally expected in the original release. Now this is one of the few times that I can remember that the revisions have been staggeringly positive. On most occasions there's a little bit of negative revision. So all in all, 172,000 new jobs for the month of May in the preliminary estimate, plus revisions on the positive side, showcase a pretty strong report here on the employment picture for the month of May. So let's get right to Steve for our opening conversation where we'll get a little bit of a recap on this week's news on Iran and what's going on with oil and then dive a little bit deeper into what's going on with the markets. So Steve, what are your thoughts?

Steve Hoedt [00:05:16]

Well, Brian, it's been another week where the markets have largely ignored what's been going on in the Middle East. And there have been some interesting developments. When you look at the number of cargo ships that have crossed through the Strait of Hormuz. Do you have any idea what the number was this week?

Brian Pietrangelo [00:05:40]

I don't know, like 10.

Steve Hoedt [00:05:42]

Actually, yeah, it's like 10. It's like 2 boats per day, right? So effectively, we're at the same level of crossings that we were on March 15th in the middle of this situation over there. So really there's been no fundamental change in terms of the impact on global markets from all the machinations that have been going on behind the scenes between the administration here in the US and the regime in Iran. So there's been some news this morning that there were some warning shots fired at some US destroyers. The CENTCOM is saying that no, there weren't shots fired. So who knows exactly what's going on over there. I think that the real thing for the markets is to focus on when and if are there going to be some more oil and gas getting to market. And right now it seems still not. I think that where we'll start to see this is when we get deeper in the summer and we get closer to what commodity market observers call the bottom of the barrels. So essentially the world has been drawing on inventory levels over the last two to 2 1/2 months in order to smooth out the disruptions that have come from shipments from the Middle East. And we're getting to levels where operationally speaking, it could start to cause some stockouts in various global energy supply chains. So that'll be interesting to watch as we move through the summer. Are we really going to get to those levels? And then what's going to happen when we do? I think that could impact economic activity, obviously, if we start to see things like diesel fuel or jet fuel get so tight that you have to start to see flight cancellations or you see other types of traffic get rerouted, things like that. So it's going to be very important to pay attention to, but largely the market has chosen to ignore this. And from an equity markets perspective, the market basically believes that this was over the day that the ceasefire was declared.

Brian Pietrangelo [00:07:58]

Great updates, Steve. Thanks for bringing our listeners up to speed on that. And let's pivot back to some activity that happened during the market this week.

Steve Hoedt [00:08:05]

Yeah, so the markets had a couple different things going on. So we've started to see the first kind of cracks in some of the AI trade here in the last couple of days. So And I'll mention a couple of stocks, one of them domestically, one of them internationally. So yesterday, Broadcom had reported earnings the night before and had mentioned that their guidance for 2027 was going to stay the same. They're the largest maker of custom silicon for the AI trade. So it made people kind of go, and you saw their stock sell off. But not only that, it kind of impacted the whole broader ecosystem for AI. And you saw a very, very large rotation. In fact, one of the largest performance differentials in the last 15 years in daily trading between technology and financials. So you saw a huge rotation between those two areas in the last day. And then overnight last night, we saw SK Hynix, which is one of the largest makers of memory in South Korea, one of these companies that's been driving this incredible performance in the Korean Kospi index for our listeners. They're down 10% in trading today, talking about similar, there are some similar issues with them. So, you know, here's like the first two kind of things that we've seen over the last few months that are making people, at least from an investment perspective, start to question the legs underneath this AI thing. And then on top of that, we've got the largest IPO in the history of planet Earth coming next week with Space Act. And you've got market participants trying to prepare to figure out how to handle that.

Brian Pietrangelo [00:10:05]

Steve, we began talking about it two weeks ago, and we're going to talk about it today and then next week when they actually launch, pun intended. And so has there been any update on pricing or what the overall look is?

Steve Hoedt [00:10:17]

So we did get pricing indications. They're looking to price the deal at $135 a share. So kind of, we had ballparked the range at 125 to 150. So they narrowed that down. And so we were in the range. So they're going to price it at a $1.77 trillion market cap. They're going to raise about $75 billion in the offering. And all indications are that it's going to be oversubscribed. So we'll see how this goes next week. Talking with some strategists that I value on Wall Street, it sounds like the source of funds for this is going to come from two different places. One, a lot of managers have been letting cash inflows build up here on a very near-term basis. So, just from a market plumbing perspective, when investors put capital into a fund structure, the fund manager would typically put that capital to work on the day that they get it. Now what we've seen over the last few weeks is instead of putting that money to work immediately, the fund managers have been letting it build up in cash so that they'll have cash in reserve to be able to go in and put a position on. That's much less disruptive. from a market perspective than if they had to sell something to buy something. The other thing that we do think is likely to happen, though, is that as we get these mega cap IPOs, and I'm not just focusing on SpaceX next week, but we've got two more likely over the course of the summer with OpenAI and Anthropic also in the pipeline here. And those are the two largest AI vendors in terms of a product, I would I think that you're going to see some rotation out of some of the MEGs, Devon, mega cap tech names in order to fund this. That to us is really the likely the likeliest market impact that we're going to see where that can cause problems for the S&P 500 is that 40% of the market is still tied up in these mega cap names. So any rotation out of it selling pressure at all will cause problems for the headline index for the S&P 500. So don't be shocked if it's difficult for the S&P 500 to make headway over the next two or three months as we move through the typical summer doldrums period as we see these IPOs come out and we see some capital rotate.

Brian Pietrangelo [00:12:53]

And Steve, maybe it'd be helpful for our listeners if you could talk a little bit about how a stock like this post IPO gets included in an index.

Steve Hoedt [00:13:02]

Sure. So it's been really… The rules are changing, let's put it that way. So the index providers, whether it's NASDAQ, Russell or S&P, all have sets of rules on how things get included. And they include things like seasoning, meaning how long it's been public, liquidity, how much of the float is actually available to trade, and then, oh, wait, profitability for some of them. Russell and the NASDAQ have both changed their rules or waived rules to make it so that there's a fast track for inclusion for these large mega cap IPOs. The S&P announced in the last couple of days that they are not going to change their rules. The S&P ones have a profitability focus in them. And basically, if you're not profitable for the four quarters prior to inclusion, you're not going to be included. So that's going to keep these stocks on the outside of the S&P 500, but they will likely be included in the Russell 1000 index. And for sure, they're going to get included in the NASDAQ 100. So there's not as much in terms of ETF flows tied to the NASDAQ 100, just the triple Qs, which people which people trade. It's much more of a trading vehicle than it is an investment capital vehicle. Russell, though, is a different story. There are a lot of managers in the large cap land who are tied to the Russell 1000. And so there will have to be some buying pressure there. But I have to say, I'm very happy they didn't include it in the S&P 500 and changed the 500 rules to me that the elimination of the profitability constraint on inclusion in the 500 would have been a bridge too far.

Brian Pietrangelo [00:14:56]

Steve, two final questions for you. We've talked about a lot in the past, but it's quieted down a bit this year recently, but what are the trends you're seeing in gold? And then we'll finish with your favorite donut. I don't think you're a donut person, Steve, but what is it?

Steve Hoedt [00:15:10]

Well, my favorite donut would be Timbits, but we're not going to talk about that. And that's for Tim Horton's, for those of you who don't know. But I would tell you that From a gold markets perspective, we've continued to see backing and filling here. And honestly, it wouldn't surprise us a bit if we were to see this backing and filling push us all the way down toward 4,000 as we head through the summer. Things have really come off the boil there. It's not something that we see a lot of inbound questions on anymore. Six months ago, everybody was gold, gold, gold. And now it's now nobody cares about gold. Now everybody's talking about SpaceX. There's probably a clue for market participants there or our listeners to think maybe if nobody cares about gold and everybody cares about SpaceX, I should be buying gold and I shouldn't be buying SpaceX. But I think that that's one of those things where we think that gold has a pretty good long-term outlook over a multi-year period from here. But we got really cooked off to the upside on that parabolic move earlier this year that we talked about. Parabolas don't always end well. This one has now moved sideways to down. That's long-term a positive thing, but I wouldn't be surprised at all to see 4,000 by the end of the summer. Great.

Brian Pietrangelo [00:16:33]

Thank you, Steve, for that fantastic update. And we'll start with Rajeev and come right out of the gate with your favorite donut, and then we'll move to things like Federal Reserve policy.

Rajeev Sharma [00:16:42]

Oh, the donut question is probably easier. I do think that my favorite probably be a coconut crunch. donut that goes very well, pairs very well with English breakfast tea. So that's probably what I would go with.

Brian Pietrangelo [00:16:53]

Outstanding!

Rajeev Sharma [00:16:54]

But if we talk about the markets, you know, we got those job growth numbers. They topped all the forecast in May, seeing the strongest three month advance that we've seen in more than two years. You have a labor market that is firming up that boosts the bets now that the Fed will consider a rate hike this year to contain inflation. So the Fed will start really squarely focusing on inflation. We see the immediate impact on the yield curve with Treasury selling off. The two-year was up about nine basis points right on the jobs report. We have a yield there on the two-year around 4.13%. If you look at interest rate swaps, traders are now fully pricing in one rate hike by the end of the year. So with labor markets not really a concern, again, the Fed is going to be focused on inflation, and so that puts the traders to start pricing in about 24 basis points of hikes by October and 41 basis points of hikes by the end of April next year. A week ago, we saw the markets pricing in about 25 basis points by March of next year. So things have changed pretty quick. Now you also have Kevin Warsh, the new Fed chair. He's gonna be coming in, having his first policy meeting on June 17th. No one really expects the Fed to do anything at that meeting, but you could see a signal from the Fed that More officials are leaning towards a rate hike. That being said, most investors expect Kevin Warsh to sound pretty neutralized first press conference. There really is no urgency for the Fed to do anything at this Fed meeting, but we will see some of economic projections. It'd be very interesting to see how many dissents we have with the policy statement that comes out that day. And if you keep all this in mind, you have treasuries moving through breakout levels right now. You have yields on the 10-year, they've moved to 4.5%. That's the midpoint of where we were in May. You have no buyers really coming in and stepping in right now. So we could see higher yields ahead. You could see some pressure to keep yields higher where we are right now. And the other part of the fixed income market that I focus on is the credit spreads. We did see some modest widening this week. Investment grade spreads were wider by about a basis point. Yield is wider by about two basis points. So really nothing terrible happening in the credit markets right now. We still remain at multi-decade tights, and the new issue calendar is doing very little to dent that picture. And we've seen a lot of new issuance in investment grade, and these new issues are getting placed. They're doing well. There just continues to be inflows into the investment grade market. And with those inflows, you're going to see, again, investors looking for those high quality names at very decent yields right now. So junk bond spreads, we're at near historic tights. Leveraged loans have climbed above pre-Iran war levels. This is important because it shows the market sentiment. And credit markets have remained resilient during the Fed's last tightening cycle. The biggest risk I see right now for investors in the credit markets would be some kind of stagflation that might happen. But if you look at where spreads are, I don't think that fear is really there yet. And I really do think that as long as the new deals do well, as long as there's liquidity in the credit markets, I think that, you know, investors continue to pour in to try to find those higher yields that they've not seen for a while. And you're again talking about blue chip companies that are giving you a close to 5% yield. It's very hard for investors to not get excited about that.

Brian Pietrangelo [00:20:19]

Yeah, Steve, sorry, Rajeev, when we're talking about the Fed, next week we'll get CPI report, then we have the Fed meeting, and then after the Fed meeting, we'll get PCE report in terms of inflation. It's very hard to think about a scenario in which they could cut rates. What do you think would have to happen? Iran war would get wrapped up, oil would come down, then maybe the trimmed mean version of inflation instead of the normal version of inflation. What are your thoughts on what would have to occur?

Rajeev Sharma [00:20:46]

Yeah, it's a very good question, Brian. And I really do think that a lot of those factors that you mentioned would have to happen. But again, even if the Iran war ends, The impact that's going to already have on inflation, I think that's still going to keep rates higher, kind of keep rates around where they are right now. Again, I don't see the Fed having a lot of catalyst to start cutting rates. Big, big change in market expectations from the start of the year where many investors are thinking five to six rate cuts this year. That didn't happen. I can't imagine the picture getting so great that the Fed starts thinking about cutting rates again. At most, you could just see higher for longer.

Brian Pietrangelo [00:21:25]

Final question for you, Rajeev, is that there's private credit in the news again, but it doesn't seem to be affecting the public credit in terms of the credit spreads that you just mentioned. Do you see any carryover or any nervousness in the public markets?

Rajeev Sharma [00:21:39]

You know, the biggest nervousness that I think that's there right now, I mean, you're absolutely right, private credit was a big story a couple of months ago. You did see spreads start to gap out a little bit in the public markets. Right now, I think the biggest fear in the public markets right now is no longer really private credit at this point. I think it's more about complacency in the market. If you're seeing spreads at these multi-decade tights. Is the market missing something? And I think some investors are starting to really pick and choose where they want to be in the markets right now. Do you really want to go down the credit spectrum to pick up a few basis points of yield? I don't think you do. High yield has obviously been more impacted by private credit and some of the woes that we saw in private credit. But I do still see that high yield has outperformed investment grade all year. And I think a lot of that has to do with the shorter duration of high yield. I think that's helped the high yield markets. The lack of new issuance in the public markets for high yield has also helped high yield markets. But where we sit, I really don't think it makes a lot of sense at these levels to really start playing with those lower quality names because private credit obviously has a way of poking its head up again. And there are still jitters out there in the market about private credit. So I really do think that right now the market's focused on trying to be the upping quality trade.

Brian Pietrangelo [00:23:02]

Well thank you for the conversation today, Steve and Rajeev. We appreciate your perspectives. And before we close the podcast, our final reminder for our upcoming National Client Call on June 9th, Tuesday next week at 1 P.m. Eastern and 10 A.m. Pacific, we will be going over our mid-year economic and market outlook from the Chief Investment Office covering geopolitics, artificial intelligence, inflation and interest rate, and the equity markets and the consumer. So if you haven't received an invitation, please reach out to your relationship manager, see if you can get that invite, and be happy to have you join us. Again, national call Tuesday, June 9th at 1 P.m. Eastern, 10 A.m. Pacific. So as always, thanks to our listeners for joining us today and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. And we consistently remind folks that past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:24:18]

We gather data and information from specialized sources and financial databases including but not limited to Bloomberg Finance L.P., Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange (CBOE) Volatility Index (VIX), Dow Jones / Dow Jones Newsplus, FactSet, Federal Reserve and corresponding 12 district banks / Federal Open Market Committee (FOMC), ICE BofA (Bank of America) MOVE Index, Morningstar / Morningstar.com, Standard & Poor’s and Wall Street Journal / WSJ.com.

Key Wealth, Key Private Client, Key Private Bank, Key Family Wealth, and KeyBank Institutional Advisors are brand names used by KeyBank National Association (KeyBank). Key Wealth and Key Private Client are also brand names used by Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor.

The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA).

Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), 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 and it should not be used as a basis for investment or tax planning decisions. 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.

The summaries, prices, quotes and/or statistics contained herein have been obtained from sources believed to be reliable but are not necessarily complete and cannot be guaranteed.  They are provided for informational purposes only and are not intended to replace any confirmations or statements.  Past performance does not guarantee future results.

Brokerage and certain investment advisory services are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor. Insurance products are offered through KeyCorp Insurance Agency USA, Inc. (KIA) and underwritten by third party insurance carriers not affiliated with KIS. KIS and KIA are affiliates under the common control of KeyCorp. To learn more about KIS’s investment business, as well as our relationship with you, please review our KIS Disclosure page. Check the background of KIS on FINRA's BrokerCheck.

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