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September 4, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, September 4th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we head into the weekend, and most of us know we are going into the Labor Day weekend and a little history on Labor Day. It is the first Monday in September and is an annual celebration of the social and economic achievements of American workers. The history is rooted in the late 1800s when labor activists pushed for a federal holiday to recognize the many contributions that workers have made to America's strength, prosperity, and well-being. It also has roots in both New York and in Oregon. And way back on June 28, 1894, President Grover Cleveland signed a law making the first Monday in September of each year a national holiday. Some people mark it as the unofficial end to summer and so we always have an opportunity for picnics, family and friends, barbecues, and everything else American to celebrate the overall contributions of American workers with a day off on the Monday after this weekend. So enjoy. And 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 as they labor on their craft and give us their thoughts on what's going on in the markets. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Pat Grady, Senior Fixed Income Portfolio Manager. 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 five key economic updates for you. Two are related to the overall economy and three are related to employment. First up, earlier in the week, we have the reports from the Institute for Supply Management, their PMI report on both the manufacturing index and the non-manufacturing or services index. And for the month of August, both of those reports showed expansion in both of those sectors. So that's good news that the market in terms of the economy in both industrial, manufacturing, and services continues to move at a pretty healthy clip overall. And second, we had the Federal Reserve's Beige Book report, which comes out two weeks in advance of the upcoming Federal Open Market Committee on September 16th. The report showed that economic activity since the month of July had increased modestly and in 10 of the 12 Federal Reserve districts, there was growth in slight to the moderate range with only two districts reporting no change. As we have shared with you in past quarters and in past month, this is pretty good news in that about six months ago it was only about half the districts that were doing well. So seeing that 10 to the 12 showed growth in light or slight to moderate areas is pretty good news as it is emphasized also by the consumer spending in that grew in aggregate on balance with heightened price sensitivity. As we've talked about, inflation continues to be an issue. So there's heightened price sensitivity in overall markets. And switching to the employment data that we received this week, we have #3, which is the job openings that came out of the job openings and labor turnover survey report that showed that the job openings for July of 2026 were very consistent in prior months and we're at about 7.3 million job openings. So not much change there, not much news to report. And 4th, the initial unemployment claims report came out for the week ending August 29th and remained extraordinarily stable at right around that 200,000 mark, which we've been talking about for about over 2 years now. So again, that number at that level remains very stable and is a very favorable sign for the jobs market. And finally, 5th on our list today, just this morning, the Bureau of Labor Statistics released at 8.30 this morning East Coast time, the Employment Situation Report, which has both the new non-farm payrolls, the unemployment rate, and a number of other statistics for the month of August in the employment market. So the new non-farm payroll number came in at plus 162,000 new non-farm payrolls in the United States for the month of August, which was about three times better than the original estimate that people were forecasting. In addition, the prior two months at the normal revision process created an additional 55,000 than originally expected. So all in all, a very robust employment report. We'll talk to George to see how that might affect what's going on in the FOMC world for the meeting coming up in two weeks. In addition, the unemployment rate remained constant from the prior month at 4.1%. So let's turn right to George to get his reaction to those numbers and more regarding our overall economy. George?

George Mateyo [00:05:34]

So all the news this past week, Brian, I think the most notable, of course, was this morning's, and this would be Friday morning, Friday morning's employment report. He was chock pulled a lot of grid stuff. I think by many measures, I think it was pretty much strong across the board, which was kind of a nice welcome change from last month where it was pretty soggy of a report. Strength we saw in major sectors as well as some of the more, the smaller sectors were quite notable. We also saw wages, you know, they didn't get out of control. So it's nice to see that from the inflation perspective, although it probably doesn't make the consumer feel great to see wages a little bit stagnant. But nonetheless, I think the report was pretty solid with the overall numbers of jobs that were added in the past month. And that probably doesn't cool the fears about interest rates and the overall trajectory of the economy, but I don't think it really alters the thinking with respect to what the Fed might do later this month as relates to interest rates. That still seems to be really centered on inflation, which will probably be the topic of next week's conversation. But for now, we saw a pretty strong job report that suggests the economy is doing pretty well. And indeed, I guess if you look at other measures, there's another statistic, a kind of unrelated statistic to the jobs report that looks at the number of people that are actually filing new business applications, meaning these are people that are maybe voluntarily leaving the labor market, they're quitting their jobs. In some cases, maybe they're being forced to quit their jobs. But nonetheless, people that are actually out and about starting new businesses is at an all-time high. And that actually I think is a fairly bullish sign in the sense that most people probably wouldn't be taking that much risk on if they weren't concerned, if they were concerned rather about the economy. So again, that's another data point that suggests the overall economic backdrop is pretty positive. With respect to the situation and the labor market, we saw hospitality jobs actually pick up again. Those were actually a bit weak the prior few months. I'm not sure exactly what drove that in this first month. We'll have to dig into that perhaps a little bit further. And then also, we're starting to see, again, maybe further evidence that AI is having an impact on the labor market because what they call the information sector actually shrunk again for, I think, the third or fourth straight month in a row, which is probably some suggested people moving jobs from certain parts of the economy and using AI to actually fill that void. The flip side, again, I guess this is where I can bring you in the conversation, Steve, has to do with construction, even though that the overall information sector contracted The construction, manufacturing, the hard labor type, if you will, workforce actually rose by a better expected amount. And that's probably data centers as we think about. So I'm sure you've got some thoughts on, Steve, maybe I'll just pass it over you and get your take on how you read that information and what you think about that with respect to data centers in this environment.

Steve Hoedt [00:08:23]

Yeah, look, I think when you look at what's driving the economic growth here domestically over the last few months and clearly the employment numbers, it comes down to the data center build out that's going on to support the AI revolution, for lack of a better way of putting it. I mean, I live in the Saline area in Michigan and we got $43 billion Oracle AI data center going in seven miles down the street in what used to be a farm. So that's happening all over, not just Michigan, but Ohio and other places here in the Midwest, in the north in particular. It's obviously concentrated in the north because our winters are cooler, so it keeps keeps their bills down. So that's the reason for the regional kind of angle on it. But like at the end of the day, you know, this this build out is happening and it's real and it's generating real real economic activity. There is lots of talk and we see it all over the place regarding some kind of political angle on this. I know that there are different groups that want to see this slowed down or want to say no to data centers. But I would tell you that our view is that irrespective of the red team or the blue team being in control, the data center build out is likely going to continue a pace. It's one of the areas where the US has a demonstrable, at least for right now, competitive advantage relative to its global peers. And it doesn't really seem like there's going to be any backing off of that, George.

Brian Pietrangelo [00:10:04]

So Steve, based on that information and along with you, George, what do you think that means for the upcoming Federal Open Market Committee meeting in two weeks in terms of the employment data being fairly strong then and refocusing on inflation in terms of whether there's a proposition they will raise rates or not?

George Mateyo [00:10:19]

Steve, I'm curious to get your take on this, but I kind of think it's still a coin, frankly. I don't know if this report this morning on the labor market, while certainly good and probably stronger than expected, I'm not sure it really offers the calculus that much from what the Fed is thinking. The Fed seems to be pretty squarely focused on inflation, and those reports, as I mentioned earlier, will be out next week. It does probably give some credence that, again, the economy is in a strong enough shape that they can really focus on inflation. Because absent that, if we saw the inverse of what we saw today, there would probably be more focus on the Fed needing to actually pause or even lower rates at some point if we saw a further iteration in the labor market. But we're not getting that, again, We said at the beginning, the overall jobs picture is still pretty upbeat. And that probably allows the Fed to focus on inflation, which is what we focus on too, in the sense that's likely running a bit higher than expected and been more persistent than expected due to a confluence of factors. Steve, any thoughts on that?

Steve Hoedt [00:11:15]

Well, as an equity market guy, I'm always, you know, I always like to stay in my lane, but, you know, I'll go in a pine on the Fed here. Like I look at my work go function on Bloomberg. And as of yesterday, you're right, it was a 50/50 toss up. As of right now, live, it's a 65% probability of a hike. So we've seen a 15% move based off of the employment numbers this morning. We'll get the inflation numbers next week, and if the inflation numbers tilt hot, it's likely we see that move to 75% or higher would be my guess, so we'll see how it goes. I think it's going to be really interesting to count heads on this because if you take the public comments that the Fed heads have made over the last few weeks, you've got a really even split of hawks and doves. It's like six to five right now among the voting members. And what is truly crazy is the one voting member who hasn't said anything is who? Jerome Powell. So here's the former Fed chair who's still a voting governor and he may have the controlling vote on whether a hike happens or not. I mean, the whole dynamic with this is just fascinating to watch. And I think market participants are going to be very, very curious to see how this goes. I hate to use the word unprecedented because we use it way too much, but literally, I don't think we've gone into a Fed meeting where there's been more uncertainty than what we'll have going into that September meeting in another week.

Brian Pietrangelo [00:12:55]

Great, Steve. As the equity guy, pivot back to the equity markets. What did you see this week? We saw a little bit of a decline earlier in the week and then a little bit of a rebound yesterday. What are your thoughts on what's happening underneath the market?

Steve Hoedt [00:13:05]

Brian, I think, you know, as we get into here, I don't like to just to bury this with seasonality and that kind of stuff, because that doesn't always work. So I preface it that way. But, you know, we've had basically the market continuing to hover near all-time highs. We have seen some deterioration and participation under the hood. When I look at an indicator like the percent of the S&P 500 trading above their 50 day, we've seen that fall from 75% two weeks ago to 50% today. So there is some deterioration under the hood as we head into this typically seasonally weak period of September and into mid-October. So, you know, I think the market's behaving exactly as we would think. On the flip side, volatility remains really low. Like there's not not been anything that's been spiking here and credit remains incredibly tight in terms of the BB versus BBB spread, which is our preferred measure to watch the health of the credit market. So there's really nothing under the hood here in the market that says that we're going to have some kind of a massive decline. But it wouldn't surprise us at all right now to just see us either mark time or have a little modest pullback as we head through the month of September, especially with this news driven event likely on the horizon here that people really don't have a great handle on how to price it right now in the market.

Brian Pietrangelo [00:14:32]

Great, thanks, Steve. Speaking of credit, I'd like to bring in Pat Grady, a senior fixed income portfolio manager on our tax exempt desk to talk a little bit about what's happening in the municipal bond market as it is important for a lot of our high net worth listeners and investors. So Pat, let's start off, welcome, and give us an update on what you see generally in overall muni bond market.

Pat Grady [00:14:52]

Yeah, thanks, Brian. Thanks for having me back. So yeah, muni returns in August were mostly negative for the month, but That comes on the heels of a pretty challenging month that we saw in July. The key there was more about curve positioning as we saw flat to slightly positive returns inside of 10 years, but solidly negative returns on the long end of the yield curve. That long end was under pressure from elevated supply that we saw and from inflation concerns, which we saw in the treasury market. Munis tend to move in sympathy with the treasury market, but not in lockstep. And we generally lag any move in rates. And we saw that play out on the long end of our curve in August. But I think the bigger story for munis was the record new issue supply that came to market in August. We generally see between 40 and 45 billion in new issuance per month. And in August, we saw 58 billion in tax exempt issuance come, which is an all time record for a single month. But despite that, the negative returns and the record supply, our market was able to easily digest the influx of paper due to increased demand. The negative returns that we saw July and August kind of led to elevated yields in taxes and paper. And that's really got the attention of retail buyers, which we saw in reports coming out of mutual funds that saw inflows running well above their 52-week averages. Additionally, we see in the summer months, it's a very strong technical period for munis. Some people refer to it as rollover or reinvestment. And it's the seasonal effect that we see The three of the largest months of bonds maturing and coupon payments being made are done in the summer months, which generally get reinvested back into tax exempts, which supports the market. The move higher in rates has also brought long high grade tax exempt paper, cheap to the long end. We're seeing 5% coupons traded at discount, which has traditionally been a level where we see a lot of muni buyers come back to the market. We saw deals priced this past week for high grade AA rated names in 30 years with tax exempt yields around a 510. You know, we put that in context, if you, you know, that's a taxable equivalent yield of 8.5%, meaning you'd have to buy a corporate or treasury above that level. And that 8.5% is roughly 2% higher than the comparable corporate. And then if we turn to calendar September, the outlook changes a bit. We don't have that same reinvestment dollar to support the new issue market. And that market doesn't seem to be slowing down at all. We're seeing another $12 billion set to be priced next week, which is a shortened holiday week with the Labor Day. So it'll be busy, no doubt, for the next few weeks. But keeping a close eye on the Treasury market, any cues that we might see on rate moves out of the Fed.

George Mateyo [00:17:59]

Pat, maybe just trying to tie a little bit about what we were talking earlier with respect to data centers. Are you seeing any pressures amongst municipalities in their budgets because of data centers, because of higher costs, higher electricity, other strains maybe on those budgets that might be too early to- Yeah, not yet, George.

Pat Grady [00:18:18]

It's still very early, as you know, but it's not specifically to data centers, but obviously any kind of funding that comes from the federal government might have a bigger impact, but it's hard to say specifically that's data center related.

George Mateyo [00:18:34]

Thanks.

Brian Pietrangelo [00:18:36]

So in sum, Pat, what would you say in terms of our audience who make that decision between taxable bonds and tax-exempt bonds, where are muni bonds in terms of their attractiveness?

Pat Grady [00:18:44]

Yeah, so we look at relative attractiveness based on a ratio to treasuries. Generally, we see if anything below 60% of a treasury, we would say that munis are rich to the treasuries. And so inside of, say, five years, munis still remain relatively expensive. But as I mentioned, on long end, we're seeing some weakness and we're seeing probably fair value on the long end. But without that technical support that we've seen in the past three months, If we come into next couple weeks of large issuance, we could see those ratios kind of move wider. I would expect that to be the case, but it's hard to say for sure. But absolute levels in munis above a 5% seem to get some attention.

Brian Pietrangelo [00:19:34]

Well, thank you for the conversation today, George, Steve, and Pat. We appreciate your perspectives. And we have a program note that we want to share with you that we have an upcoming national client call on September 29th on what's going on in the midterm election cycle and what it might mean for the markets and investors. So if you are needing an invite for that national call, please reach out to your advisor or your relationship manager to receive the invite. 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 at the next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:20:37]

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August 28, 2026

Brian Pietrangelo [00:00:00]

Cynthia Honcharenko [00:04:14]

I think the biggest takeaway from Kevin Warsh's first Jackson Hole speech as Fed chair is that this was less about telling us what the Fed's going to do in September and much more about telling us how he intends to think about monetary policy going forward. He telegraphed that right at the beginning with a great line. After outlining what he planned to discuss, he said, you can call it an outline, you can call it a trail map, just don't call it forward guidance. And that really became one of the central themes of the speech. Worsch believes traditional forward guidance has essentially overstated its welcome. He argued that too much communication can create what he called a hall of mirrors problem, where markets are looking to the Fed for direction while the Fed is simultaneously looking at market prices for information. Instead, he wants markets doing more independent price discovery and the Fed retaining more flexibility to respond to the actual economic environment. His phrase for that was a quieter Fed, one that's more purposeful in its communications and less focused on signaling the next policy decision. And that was his pretty strong economic assessment. Warsh said the economy appears to have strengthened. He sees the labor market as stable, consistent with full employment, business investment strong, corporate profits are growing, and AI investment could significantly increase productivity and potential growth. He described this moment as a hinge point in history. But when he turned to inflation, his tone became much more serious, and he reiterated that the 2% is a firm fixed target and said that the Fed's predominant focus right now should be on prices. His standard was very clear. We must be confident that underlying inflation is moving toward our objective. clearly and at sufficient speed. Otherwise, we have more work to do. I would say it's probably the most important policy message in the speech. Jackson Hole provides a lot more context around what we heard from Kevin Warsh on the July 29th press conference. During that press conference, he warned markets that they wanted forward guidance and a clear reaction function, and Warsh really wasn't willing to provide either of those. Today, he essentially explained why. He doesn't want to pre-commit the Fed to a path of rates. He doesn't believe the economy can be reduced to a mechanical reaction function where a particular data point automatically produces a particular policy response. So I view this speech as continuity rather than a change in direction from July. We also heard the same emphasis on the credibility of the 2% inflation target. And importantly, nothing today suggested that Warsh believes the Fed has finished the inflation fight. In fact, he went even further by saying the responsibility for 65 months of sustained elevated inflation sits squarely with the central bank. And that's a pretty powerful acknowledgement of accountability from a Fed chair. I thought the overlap with Kansas City Fed President Jeffrey Schmid was particularly interesting. Schmid said this week that inflation remains stubborn and sticky and question whether monetary policy is actually restrictive at today's three and a half to 3.75% Fed funds rate. He said, I don't know what we're restricting currently with that rate policy that we're at today. Worst didn't use exactly the same language, but he arrived at a very similar place. He noted that credit and loan markets are showing few signs of policy restraint and said he would be hard pressed to describe broad financial conditions as restrictive. So we're hearing an increasingly important question from within the Fed. If the economy's resilient, the labor market's effectively at full employment, financial conditions aren't particularly restrictive and inflation is still well above 2%, is the current policy rate actually doing enough? I think that question is going to become increasingly important heading into the September FOMC meeting. So what does this mean for markets? I'd resist interpreting this speech as an explicit signal that a September hike is coming. Warsh deliberately didn't give us that. But I also don't think that you can characterize this speech as dovish. He gave us an economy that looks fundamentally strong, labor market at full employment, financial conditions that don't appear particularly restrictive, and inflation that remains too high. That combination certainly keeps another rate increase on the table if the inflation data doesn't improve. And I think the initial mixed reaction in treasury yields actually makes some sense. Wirch didn't give the front end a specific September policy signal, but he also didn't give the bond market reassurance that the Fed has finished tightening. Longer term, his move away from forward guidance could also mean more market-driven price discovery and potentially more interest rate volatility because investors are going to have to react more directly to the incoming economic data rather than relying on Fed officials to tell them where policy is headed. And perhaps the best way to summarize his speech is actually the way that Warsh chose to end it. I stand here today committed to a discipline, not to a decision. To me, that's the essence of Warsh's message today. He gave us the framework, but he very deliberately did not give us the forecast.

George Mateyo [00:10:01]

Cindy, that's a really awesome summary. And I think you said a lot there that's really important for our listeners to take hold of. And the last thing you mentioned, I think, is really important as well, where we're not going to get decisions preempted from the Fed. They're not going to tell us what they're going to do. And in the past, not that they were that explicit all the time, but they gave us a pretty robust framework, as we call it, forward guidance, some kind of a sense of where their heads are with respect to monetary policy and interest rates. And markets got really hooked on that, like a better term. I think they really got conditioned to respond to that guidance and when you take it away, it creates a vacuum. And so, as you've been saying for quite some time, as we've argued also, changes are happening now with the best messenger, of course, we have a new Fed chair. There's changes in the message itself, which is pretty interesting that we're talking about a new Fed chair at the same thing. Maybe policy might be undergoing some changes as well. And more notably, it seems like how the message is being delivered. is also changing right in front of us too. So all those things together, as you said, Cindy, just creates a lot of volatility, I think, with respect to interest rates and where we're headed. The markets are digesting this in stride today, it seems like, and that's probably as best we can do in the absence of growth clarity. And because we're in a period of transition, I should say, market's going to need time to react to that and adjust to that over time. So I think it's fair to say that a lot of this, when we look at this probably two years from now or so, We'll probably have gotten somehow preconditioned or maybe reconditioned to think about what this all means. But for now, it probably creates a little uncertainty. But over the long period of time, I suspect that this is going to come out of the wash and be largely a lot of noise. I think the other question for us as investors, I think through Steve, is what's happening in the equity markets. Of course, there's been this momentous rise in earnings this year. A lot of it's been driven. of course, by AI and AI-related spending. We got a big report this week from a major company that's really fueling the AI trade. At the same time, we saw a former Fed official, a guy named Bill Dudley, who deserves a lot of respect. I think he was the former president of the New York Fed, which has an outsized vote on the FOMC. And he was pretty critical, actually, of what's happening in the AI sector, and more specifically, thinking that we actually might see some type of peak here coming down the pike in the not too distant future with respect to AI spending and what that might mean for the economy. And in his view, it is slightly negative. So more than slightly negative, pretty negative actually outright altogether. So I'll put that over you, Steve, in terms of how you're thinking about AI spending, how you're thinking about semiconductors, how you're thinking about earnings in general. love to get your thoughts on how you think the setup now is actually in front of us with respect to the equity market going forward.

Steve Hoedt [00:12:46]

Well, I'm going to riff on the Fed for two seconds before I jump in the AI situation, George. So my interpretation of this today is that this is hawkish. And when you look at the reaction of the two-year yield jumping from and a little over 420 yesterday to 432 right now. The high that we had in July this year was 437 and the high last year is 441. So we are within 10 basis points of seeing multi-year highs in the two year. That to me is unabashedly hawkish. Like the market's taking this and thinks that it's, I mean, the market's doing the Fed's job for it. It's tightening monetary policy in my view. So whether it's forward guidance or not, he's getting tighter monetary policy out of this. So at the end of the day, we'll see how the markets react. Equities are up 30, 40 basis points today. So the markets seem to be taken in stride. I think people felt that this was kind of likely going to be the outcome of the Jackson Hole confab this year, but clearly the short end is sending a message that things are going to get tighter. We saw the probability of a Fed hike jumped from 40% to over 50% for September, just simply on the reaction to the news. So this morning—

George Mateyo [00:14:23]

I'll cut you off for a second. If you're going to go down this path of talking about the Fed and rifting on the Fed, to use your term, should we talk a little bit about the long end of the curve? I mean, we've got this situation right now where the Fed, as you said, the market is trying to do the Fed's work at the short end by bringing rates up. At the same time, on the other side of, what is it, Constitutional Avenue, I think, where the Treasury sits, You've got the Treasury Secretary talking about bringing long yields down and actually taking over measures to do that. we

Steve Hoedt [00:14:52]

He's trying to. He's trying to, and that's worked so far. But I'll tell you, the dollars that they're talking about are incredibly small compared to the size of the long end of the yield curve. So we'll see how long it lasts. When you look at global long yields, pull up a chart of the Japanese 10-year, pull up a chart of the German tenure, pull up a chart of the US tenure. They're all going in the same direction, higher. It tells me that we're likely in an inflationary or non-disinflationary regime now compared to where we were a few years ago. So I think they can fight that all they want. And the reason why they're fighting it is because the interest payments for the US government start to get very large when you have higher yields than what we have today. So we'll see how successful that is. He's definitely brought the long end of the yield curve down by about 15 to 20 basis points with this manipulative activity over the last couple weeks. We'll see if it sticks. At the end of the day, the bond market's really big and it has more money than to play with and what they do currently. Although, you know, if the Fed starts to get involved buying the long end of the yield curve, that's a different question. So we'll have to see right now, there's no talk of that. I'm not saying that there is, but at the end of the day, the Fed's balance sheet is infinite if they choose to make it so. We'll have to see how it goes. When you look at the AI comments that you mentioned earlier from William Dudley, I think the thing that caught my attention this week was not only the earnings numbers that came out of Nvidia, which were fine, but the price action in semiconductor stocks continues to be a bit concerning. So we rallied back to a now slightly downward sloping 50-day moving average for the semiconductor index, the SOX. about two weeks ago, and we failed to take that out. And we are sitting below it today, even after the fundamental numbers from NVIDIA came out, which said that the AI spend should be just fine for the foreseeable future, George. So, you know, I think when I look at this, it starts to paint a picture of maybe the market moved too far too fast for some of these names. And we're going to see at best a period of time where semiconductor stocks and others that are part of this AI ecosystem need to mark some time in order for the underlying fundamentals of AI to maybe be revealed in more of a productivity enhancing way for customers and things like this. and then we'll see how things play out. But I mean, it's very clear to me that AI is here to stay. We're going to be talking about the benefits of this technology for years and years. But you can go back through history and find all kinds of things where we've had profound fundamental economic change that we've talked about for years and years. And yet the first or even in some instances, the second wave of companies that were involved in creating that ended up not being the beneficiaries of it. And in some instances had problems. And I would point to the price action in the CDS markets for some of these hyperscalers that are spending large amounts of money on this, and you can point to two of them in particular that are trading near junk levels, namely Oracle and Meta, that sends a kind of concerning picture in terms of the overall spend here. Like you've got to figure out a way to actually make money doing this in order for these companies to justify the literally trillions of dollars that they're talking about spending on infrastructure for it. We just aren't quite there yet. And the market's kind of starting to show some skepticism about it, as it well should, quite honestly.

George Mateyo [00:19:20]

Well, we've been arguing, I think, now for the better part of a year that the switch flipped around this time last year, Steve, when many of these big companies that we talked about funding that AI spend have kind of flipped from using their cash flow, right, the amount of cash that their business generates effectively, to use that to spend as aggressively they have been, and instead they've been more reliant on debt and other, they've actually issued equity too. So I think it's kind of fair to say that in the last 12 months or so, We've been signaling that the market, I think now has kind of come around in this view that the AI trade itself has become more discerning, right? It's not just one-stop shop. Not all boats are rising equally at the same time in the same way. So I do think that there's probably some nuance there. And one thing that we've also been emphasizing is that probably portfolios should be tilted slightly more towards AI adopters versus the pure enablers. And you can categorize that in many different ways, but I think it is fair to say that if we do think that long-term benefits of AI will eventually accrue, either probably accrue to those companies that use AI versus the companies that are just building it, for lack of a better term.

Steve Hoedt [00:20:26]

Totally agree, George. And I think that the market is really looking at what's happening in the balance sheets of some of these formerly pristine technology companies as they lever up to do this. not that everybody like you and I that went through the bubble in 2000 is permanently scarred, but start to look at some of the parallels between things that were happening with global crossing and others that just put all kinds of leverage on in order to be able to build out the infrastructure. And look, these. These hyperscalers are real companies. They're not necessarily going to go down 95 or 100% if this doesn't become economically super viable for them. But at the end of the day, that's what when you see the CDS expanding and you see the market saying, hey, maybe we should think about this before we raise another trillion or two of debt in order to fund it. I think that there it's it's a it's caution that is is well warranted.

Brian Pietrangelo [00:21:32]

Steve, one final question before we end the podcast is to tie that cautionary tale to another concept with Nvidia and or other companies lending to their customers and talk a little bit about that for our listeners to help them understand.

Steve Hoedt [00:21:47]

Yeah. You know, when you see vendor financing, It starts to create a circular issue, and what kind of jumped to my attention. on this over the last month or so is, and the parallels back to the bubble are interesting because when the financing becomes the story instead of the actual technology, that's when market participants need to start to pay more attention. Because what we've seen over the last few months is not people talking about, oh, how great the the technology is anymore. We hear people talking about, well, Blackstone and all these other people are getting together to backstop some stuff from Nvidia and others to be able to fund the projects. And the funding mechanisms have now become the story. That to me, again, it just says, hey, we're not early in this cycle anymore when we're talking about financing and we need to pay attention, whether it's the vendor financing coming directly from Nvidia or whether it's the backstopping of multiple other types of entities in the markets that are providing funding for this. When the funding is the story, start to pay attention.

Brian Pietrangelo [00:23:09]

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

Disclosure [00:23:43]

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

August 14, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, August 14th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. It's that time of year again when the kids return to school, both young and young adult, especially those returning to college for their experience. This week marks the end of summer, but not from a geological standpoint, but from the fact that the kids are not able to go to the pool anymore. So good luck to all those returning to school. In addition, tomorrow is actually National Shoe Donation Day. So if you got an extra pair lying around the house, it might be a good opportunity to donate that to somebody in need. But for today, more important on a fun fact day, it is National Creamsicle Day. Of course, the creamsicle is the wonderful ice cream on a stick treat that blends orange flavor together with vanilla. I like all types, including the push-up flavor, the blend on a stick in popsicle format and also the ice cream store that's in my hometown has a twist known as the orange swirl which combines the two flavors and it's just absolutely fantastic. So grab one if you can, nice flavor and a retreat from the heat in the summer that we're experiencing right now. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Rajeev Sharma, Head of Fixed Income, and Steve Hoedt, Head of Equities. 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 Question Article series addressing a relevant topic for investors. Also, we are excited that we're launching our periodical known as the Key Investment Perspectives article that is a quarterly periodical that takes a look at what's happening in the quarter for the markets and the economy and talks about an update including some really cool articles on some very specific topics. So we are relaunching that. It's available on key.com. Take a look if you want to see what's happening out there in terms of a quarterly update and we'll continue to launch that every single quarter. Finally, as we always say, 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, dare I say that the meeting was fairly calm on almost all fronts, including the stock market, which hit all-time highs. The bond market was fairly calm. We've got geopolitics also fairly calm. And then the overall economics, in terms of the releases that we're about to share, also fairly stable. We have three key economic releases for you and we will begin with inflation. Now this was certainly the most important economic release of the week and we got CPI or Consumer Price Index measure of inflation for the month of July. On a month-over-month basis, all items were up 0.1% and core, excluding food and energy, up 0.2%. Now those monthly numbers feed into the year annual, year-over-year numbers. All items were up 3.4% in July, which was down a little bit from June, headed in the right direction, and core, excluding food and energy, at 2.5%, which again was down 1/10 from June. So good numbers in the direction, but still lagging in terms of making significant improvements. On a year-over-year basis, still a lot of increases in the gasoline and energy areas, but more so inflation still elevated in a couple other areas, including food at 3%, including electricity at 4.2%, apparel at 3.9%, and shelter at 3.2%. So again, in summary, inflation down a little bit in a good way, but still significantly elevated over the Fed's preferred target, which will again have implications for the upcoming Federal Reserve meetings in the next few months. We also got information on the inflation side from the producer price index or wholesale pricing, which included some numbers that were fairly in line with expectations. And second, yesterday on Thursday, we get the weekly initial unemployment claims, which continue to remain extraordinarily stable around 200,000. And again, this is a good news as in one of the indicators in the employment market that continues to remain stable. Now we oftentimes don't report on continuing claims. because it's a coincident indicator rather than the leading indicator of initial claims, but it was interesting to see that the ongoing or continuing uninsurance or insurance claims for overall unemployment were under 1.8 million for quite a while now that has been above that number. So to see it dip below 1.8 million was again good news in terms of that data point. And finally, our third update for today came this morning from the Census Bureau in terms of retail sales, and the number for June came in at revised, which was 0.2%. But most recently, the updated number for July was negative 0.6%. Now, here are a few things to consider. Number one, this was the first time in nine months that the number was negative as the preliminary number that last occurred in October of 2025 when the number was negative. So we won't make much out of a single data point, but we will continue to watch the trend. In addition, it was somewhat expected as rising gasoline prices had a nominal effect on this number, so there was some expectation there may be a little bit of a pullback. Also, if you take the number, excluding auto and gas, it was only a decline of minus 0.2%, which is a little bit more palatable and a little bit more reasonable. So net-net, a negative report, but we will continue to watch it on a month-over-month basis to see the strength of the consumer in the United States. And coming up in the next few weeks, we've got next week the Federal Open Market Committee meeting minutes get released on 8-19 and then we go into 8-26 where we get GDP for the second quarter, second estimate, PCE inflation. And then on August 28th, we'll give you a preview that we'll be watching out for Kevin Warsh's potential statement at the Jackson Hole Economic Symposium on Friday the 28th. So let's get right to our panel where we'll have conversations with George, Rajeev, and Steve, of course, on their various areas of discipline in the markets. And we will begin with George with your general reaction to the economic data this week and what it might mean for the economy. George?

George Mateyo [00:06:42]

So I think it was somewhat calm, Brian, on the surface in terms of the economic reports. Didn't really surprise the markets too much. For the first time in a few months anyway, we actually saw reports come mostly in line with expectations, which is always nice to see that the market can kind of anticipate things and market participants can also anticipate things. And sometimes those two coincide. So as you mentioned, I think inflation was probably a little tamer than people expected, which is good news, at least at the headline number, same thing. So we've got two levels of inflation, of course, what we call consumer inflation and also producer inflation, which is kind of a fancy way of talking about business inflation. I think overall they were probably, again, in line with expectations overall. There are some, I think, things beneath the hood that we have to pay attention to still in the sense that inflation really hasn't gone away. And there are some concerns that maybe it does elevate itself again later this year. But for now anyway, the markets certainly braced that and as you mentioned, moved to new highs on the back of some quote unquote mellower inflation. We also saw jobless claims pick up a little bit. That's, again, not a worrisome trend. It's probably a little bit low, artificially low a few weeks ago. And so we're coming back to kind of a comfortable range as opposed to something really low. And then I think people are also looking at this morning's retail sales report and seeing that maybe there's some softness to consumer, but they also point out the fact that there are some calendar issues in the sense that what happened last month and last year are kind of actually kind of making the numbers this morning look a little bit softer than they otherwise would. So I think the overall takeaway is that the consumer is probably in okay shape. Things are slowing down a little bit for the consumer. And I think it's probably fair to say that inflation is maybe peaking a little bit, pausing. But again, we just really can't say we're out of the woods just yet. What it does do, however, I think it does buy the Fed some time. Talked a lot about recently that maybe the Fed is inclined to raise interest rates. And indeed, just about two weeks ago, there was about a 50-50 chance that they would be raising rates sometime in September. Those odds have now shifted materially and there's about a 75% chance that they do nothing, which kind of, I guess, coincides with our view. So that's good news. I think one thing that we probably need to pay some attention to also has to do with the fact that this past week, a new report, a new update on the deficit was unveiled. And I think it reached pretty much all time wide levels. So that's not really great news for the long term. And we've talked about the fact that The deficit is going to be a problem when it's a problem. We don't know if that's going to be two weeks or two years or two months from now. At the moment, it seems like the bond market's taking that somewhat in stride. We can look at long-term yields however they have moved up, and that actually is an interesting development by itself. Of course, we've also seen the deficit being impacted by lower tariff revenues, higher tax cuts, so less revenues coming in. At the same time, we're spending more on defense, as we all know, in other places in the world. So we put all that together, and I think the key takeaway is that bonds are probably in for maybe some digestion here. We also have to acknowledge that maybe there are things you can do in your portfolio to diversify around higher rates, which is important to think about. And at the same time, selectivity and emphasizing quality, I think it's going to be of a paramount concern in the back half of this year if we should see some slowdown in earnings and other things that are really supporting the overall stock market. But Rajeev, of course, as I mentioned, the Fed has now probably gotten a bit of time to kind of think about what they might do next. How would you actually kind of characterize what you saw this week and how it's actually impacting your outlook for the Fed in the latter half of 2026?

Rajeev Sharma [00:10:27]

Well, George, the market's really interpreting every single piece of economic data. So you get the jobs numbers, CPI, PPI, and now we get the retail sales numbers. So it's removing the urgency for the Fed to tighten. The September meeting is effectively priced as a hold right now, and the long end is remaining under some pressure for the supply dynamics. So the steepening bias continues in the market. The market is viewing the front end rates as having more room to fall at a quicker clip than longer term rates. a steeping of the yield curve, a continued steepening. And the bond market is really rallying on the front end. You have the two year yields. That's the part of the curve that is most sensitive to monetary policy. They're trading around 4.13%, while the 10 years sits around 4.65%. And as you mentioned, George, the 30 years, well above 5% at 5.24%. So the curve continues to steepen. I think we're going to see more of that going forward. And what's really driving the move is that you get that software employment, Softer inflation data, that's been the primary catalyst. There's a lot of pressure on the Fed right now to just hold right now. There's no urgency to hike rates. July CPI came in around 3.4% year over year. That's the slowest pace since March, and I think that continues right now. You have July CPI, your PPI readings, they're all pointing towards a subdued PCE print, and it supports that September hold. That said, we do have some Fed officials that are coming out and kind of arguing for a more tighter monetary policy. You've got Richmond Fed President Tom Bark and he came out and said that, you know what, September should not be off the table. Susan Collins also has supported a September rate hike. But really I think you gotta go with the data. We don't have a lot of cues from the Fed right now. Kevin Walsh has not given us a lot to work with and I think every single economic piece of data is extremely important. So when you get these kind of economic data that's coming through, that's kind of pointing towards a softer labor market, a softer inflation print, you start thinking whether there's gonna be a hike or not at all this year and right now, All expectations for a Fed rate hike have been pushed out to December. Last week when we spoke, there was a 50/50 chance of a September rate hike. That's also gone off the table. And now you're going to start looking for other cues. So you have the Jackson Hole Symposium, which is going to be August 27th to 29th. Generally, the Jackson Hole Symposium is a good opportunity for the Fed chair to really start giving some cues to the market. This is gonna be the first time where Fed Chair Kevin Warsh is gonna be giving a speech at the Jackson Hole Symposium. The central question is gonna be, will he use it as a platform to signal a September hold, or will he keep the door open to a hike, or will he just not say a lot, which is what he's done in the last two meetings. So the Fed has held rates for the last five meetings. But I really think this is a good opportunity for Fed Chair Walsh to come out, kind of give an idea of where his thinking is. And I think it's gonna really lead to changing the probabilities of the September 16th FOMC meeting. Right now, there's about a 30% probability that we have a 25 basis point hike at the September meeting. The key risk is going to be if Kevin Walsh comes out and starts being deliberately vague, his message I don't think the market's going to like that at all. They need some kind of conviction right now.

George Mateyo [00:14:13]

Steve, when we ended our call last week, you talked about the fact that sometimes the market does things that people doesn't expect it to do in the sense that we have this lingering overhang of seasonality on the market weighing typically around this time of year where stock prices tend to be a little bit softer in August and September. And as I mentioned earlier, I think we've now notched our 27th new high this year. So are we in the all-clear mode right now where stocks just go one direction for the rest of the year? Or what do you think we're in historic war?

Steve Hoedt [00:14:41]

I mean, George, it really does feel like it. I mean, although I'm sure that by saying that, I'm going to jinx it. The market typically tries to figure out a way to confound the greatest number of people for the largest amount of time. But very clearly, we not only hit new highs last week, but we're hitting another new high this morning on the S&P 500. And the two things that jumped out of my attention this week regarding the backdrop in terms of market environment is not only have we seen the equity market move to new highs along with breadth making new highs, we've seen volatility pretty much collapse. So the CBO volatility index or VIX is at 14.6 as we sit here this morning. That's approaching the lows seen last December at 13.5. And keep in mind, just a little more than a month ago, we were at over 21 on some news events. And back in March, we spiked over 30. So the volatility continues to move lower here and that's normal in a bull market phase. But I think it would be meaningful if we break to new lows, if we were to take out the December low. So that's point #1. And then point #2 is, I don't know if, I'm sure Rajeev has been watching it, but like the double B minus triple B credit spread has collapsed to new tights for this cycle as well too. We sit here this morning at 91 1/2 basis points. The low in early or mid 2025 was 85. So we're only six basis points away from making new multi-year all-time tights on the BB versus BBB credit spread. That is not a sign of an economy that's in any kind of peril, right? You're taking, you look at that and that to me is an unabashedly bullish sign for the markets when you've got credit as as good as it is volatility collapsing during what should be a time when we start to see volatility rise because you've got lower liquidity in the summertime, you got people going on vacation, all the trading desks, the senior people are in the Hamptons, all that kind of business. And the bottom line is we're melting up during a period of time when we should be consolidating or going slightly lower. And that's something that I mentioned last week. When the market does something that you don't expect it to, you should pay attention. And that kind of tells me that we're in the phase where the market's likely going to surprise us to the upside over the back end of this year.

George Mateyo [00:17:36]

So Steve, I'm curious to get your take on one other thing, too, in the sense that bond yields, as I mentioned, at least really long-term bond yields have now risen as they say, as people have been fixated on towards, I guess, 20 or 25-year highs, meaning they're kind of back to where they were 2007, 2008. And just when you say there were 2008, people get a little nervous, but really they're kind of back to the long, really their long-term average. I think rates are probably somewhat artificially low coming out of the great financial crisis, but the long-term average for a 30-year bond anyway is about 6%. Today we're at 5 1/4 roughly. So we're maybe even a bit below average, but nonetheless, people have been wondering Gee, if I can get 5 or so percent on a bond, historically, stocks would give you 7, 8% or so. So maybe you actually would want to rotate out of stocks into bonds to actually have some maybe stability of your return on investment. That said, we've actually seen the last couple of years where stock returns have been well north of 7, 8%. Indeed, we've kind of seen this environment for the past, I don't know, five or six years where the average return has been close to 15% for just a really diversified portfolio. Do you think, Steve, though, here's my question. Do you think at some point investors might actually rotate out of stocks into bonds?

Steve Hoedt [00:18:50]

Do you want me to talk my book? Because I will. I would tell you that if you go back historically, the optimal allocation to bonds to maximize a portfolio's return is zero. Now, I know that's not what we recommend and there's a benefit to diversification. And I say that a little bit sarcastically because I'm an equity portfolio manager. But look, when you go back and you take a look at market history, the 1990s are a good example because you saw 30-year bond yields in the 6, 6.5% range back in the 90s. And we had the largest tech boom prior to the boom that's going on right now. So rates in the neighborhood where we're at today did not get in the way of having that occur. And I look at where we're at today and I feel like we've definitely had a regime shift, meaning that if you take a look and you look at the long-term correlations between bonds and stock returns, there was a period of time prior to the late 90s where the relationship moved in one direction, meaning higher rates were okay for stocks. And then if you look at from the late 90s till 2020, lower rates were what stocks wanted. And now we're in a regime where higher rates seem to be okay with stocks again. And I think that there are a lot of folks who are looking at the zero rate environment that we had in the 2010s and thinking that that's normal and it's not normal. Like I think that you just have to look back and take a look at the way that things that unfolded from like the 70s through the late 90s. And that to me is more of the period of time that we're in today. And higher rates were the norm then compared to what we had over the ZERP regime. And again, it didn't get in the way of stocks generating good returns. So I think that, do we believe that the market's going to continue to print 20% years every year? No, that's not going to happen. If you look again at market history, typically what you get is you get 20, 20, 20, minus 20 or minus 30. Like you don't get a bunch of 8 and 10% returns. You get a string of 15 to 25% returns with a minus 30 every now and then. Those minus 30s tend to come when there's some kind of an event or an exogenous shock that causes the market to go down, causes the economy to have a hiccup. Right now, we don't see that. So maybe we're going to be in a period of time where we have an extended run of 15 plus. I'm loathe to say that we're going to print 20% though every year. I don't think people should get used to that. But very clearly there's been a regime shift and I think that the bonds are going to be in a much higher range. in terms of yields than what they have been over the last 20 years.

George Mateyo [00:22:04]

So by its definition, Steve, I guess we wouldn't see, we don't foresee an exotic shot because you really can't see one until it's right in front of you, I guess. True, very true. But fair point and really great observations. Rajeev, maybe I'll just close with you. Do you want to take the other side of that or how do you think about asset allocation and diversification with bond yields where they are today?

Rajeev Sharma [00:22:25]

Well, I really do think this is a time where bonds are attractive. And we've gone through a huge era of time where bonds were not attractive on a yield basis. There was not a lot of carry in corporate bonds. Yields were not where they should have been. And I'll tell you, if you want a diversified portfolio, you should think about bonds. And right now, you're first in line if something goes wrong. So I think bonds do give you a lot of security in your portfolio. I think you need it. And you can sleep well at night with these blue chip companies that offer you the yields that you just haven't seen for a long time. You don't have to go down the credit spectrum. You don't have to go into the lower parts of the market to really pick up yield. It's just not worth it. You can have blue chip companies with very solid yields, solid carry, solid coupons, something that the bond investors have been looking for for a long time. So it does diversify your portfolio and I'm all for bonds.

Brian Pietrangelo [00:23:22]

I'm going to borrow Kevin Warsh's phrase that he loves a good family fight at the Federal Reserve Federal Open Market Committee meeting. Sounds like we got a little one here in the Chief Investment Office here at Key Wealth. So that's a good thing. I see everyone smiling and laughing. So final words, George, for you for our audience and for our investors.

George Mateyo [00:23:39]

Sure, Brian. Well, again, a family fight is a good metaphor. But look, it's important to be diversified. I think Steve and Rajeev would both agree with that. irrespective of their own views on their particular area of expertise. But I think it is fair to say too that when you think you get too comfortable, you get too complacent, maybe that's about the time that you really want to have that diversification. And I think it is recognized that at some point there may be some surprises. The moment right now the skies appear pretty blue, but that's also the time that you probably just want to make sure your portfolio is diversified. As the old saying goes, know what you own and why you own it. And I continue to think that's really probably the best advice I can offer at this point.

Brian Pietrangelo [00:24:21]

Well, thank you for the conversation today. George, Rajeev, and Steve, we appreciate your perspectives. And before we close the podcast, we've got a program note for you. We will be off next week on August 21st. So be sure to join us when we return to our regularly scheduled program on August 28th. Again, we'll be off next week. See you in two weeks. 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.

Disclosure [00:25:15]

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

August 7, 2026

Brian Pietrangelo [00:00:00]

George Mateyo [00:03:33]

So of all the employment reports issued this week, Brian, I think the big report that markets matter most towards is the report that came out this morning here Friday morning around the job situation for the past month. And of course, this was a big one in the sense that the first time in a long time, we've actually seen a negative surprise only I guess the last few times we had a decline, it was probably over a year ago or so in the sense that people were expecting something like 80,000 jobs added for the prior month and it said roughly 23,000 jobs were lost. So that's a big deviation from the overall consensus estimate. I think there's an open question as to whether or not this is driven by supply forces, meaning are there just fewer jobs in general or is this more of a function of demand? employers aren't hiring as many workers. And I think it's a bit of both. It's probably a bit of both. And I think the supply situation is a little bit probably more of a bigger influence, but it's hard to say for sure. I think there were probably some interesting things behind the scenes a little bit that deserve some attention in the sense that historically, and maybe going back now for the past several months, we saw the health care sector represent a significant portion of job gains. That didn't happen this past month. We also saw a decline in leisure and hospitality. And we've talked about this, I think, for the past few weeks anyway, in the sense that maybe some of those numbers in the prior months actually were boosted by the World Cup. And that seems reversing. And the other thing we have to note in that sense that overall government workers actually shrunk a little bit as well. So there's a lot of moving parts there. I think the other thing that markets are paying attention to this morning has to do with the fact that the unemployment rate declined. But it declined for what they call the wrong reasons in the sense that it really wasn't a function of more jobs being added. It was fewer people that are in the labor force in general are showing up. So again, the overall job situation is probably just net-net a bit softer than people expected. And I think this is probably good news in the sense that the markets are embracing this this morning, it seems like, but it's good news in the sense that maybe the Fed won't be so inclined to hike rates when they get together in September. So again, there are probably a lot of puts and stakes with the overall report. I think the key takeaway from my perspective, again, is that the inflation situation is not getting out of hand. The labor market is probably a little bit softer than people thought just a few weeks ago. And I think if anything else, the market is going to be mostly focused on inflation when we come to next week. So Rajeev, if I were you, I'm thinking about maybe the bond market now kind of embracing the fact that maybe the Fed is going to be a little less hawkish. But probably again, we have to pay attention to the employment report next week. What are your thoughts about that important report thinking about the week ahead?

Rajeev Sharma [00:06:13]

Well, George, with that jobs report, we did see treasuries rally sharply on the print. We saw yields falling across the curve. We saw both steepening pattern. Front end and belly was really leading the curve. If you want to talk specifics, the two year immediately snapped down in yield by eight basis points to 4.18%. And the 10-year was down 6 basis points to 4.63%, which is a pretty big move on the day. I mean, if you look at the 2-10s curve and the 5-30s spreads, they've all steep into session highs and all wider as well by 1.5 and 3.5 basis points respectively. So what does this really do to the Fed? Monetary policy expectations have changed sharply just based on this one print. The weak print meaningfully erodes some of those Fed hike expectations that the market was having. The market is fixated on September being a rate hike. Around 11 basis points of September hike premium was removed right on the jobs print. The swaps market right now is pricing less than a 50-50 odds that we would have a rate hike in September 16th meeting. Money markets are still projecting one hike for 2026, but not before December. So this is how quickly things can change in the market. We had that FOMC meeting recently for the July FOMC, and at that point, the market has pretty much gravitated towards the September rate hike. Now that's kind of gone away. 50/50 odds of a rate hike in September are quite significantly lower than there were just a few days ago. So right now, I think the market is really trying to understand every single data print. We're going to get less guidance from the Fed. That seems to be the new the new regime for the Fed. So if you expect less guidance, that makes every single economic data point even more important, whether it's inflation or jobs. And what that's really done is you've seen rates be higher for longer. So bottom line is you get a decisively weak jobs current. It triggers a treasury rally, it triggers a bull steepening. The front end is outperforming. September rate hikes are cut significantly. And the curve dynamic and T-bill demand suggests the markets are leaning towards a prolonged Fed pause, meaning higher for longer. And that's something we've been forecasting with our listeners for some time now. If you'd want to look at other parts of the bond market, we can talk about corporate bonds. I mean, spreads have been pretty well behaved, but we have seen a lot of new issuance. This week, we did see heavy $80 billion worth of new issuance for investment grade. It was led by Alphabet's $25 billion bond deal. And the credit backdrop was described as pretty actionable on that data. A lot of people got involved with that deal. I think what's going to be really important is that you've got to look at investment grade supply this year. Every year we've had a record year as far as investment-grade supply is, and the demand for investment-grade corporate bonds remains unwavering. You have a lot of investors that really like the yield options you're getting right now. They like the coupons. They like the carry that you can get with corporate bonds. We're now forecasting very close to $2 trillion in new issuance for 2026. I think the initial forecast when we started the year off was around $1.6 trillion. Now we're thinking about 1.9 trillion to 2 trillion. Those estimates have gone up. And the reason they've gone up is you have AI related funding, which is much larger than had been expected. The five largest hyperscalers right now, they issued approximately $190 billion in corporate bonds this year. And that's just the first half of 2026. If you think about 2025, those same five hyperscalers issued about $100 billion in all of 2025. So half a year, we're close to $200 billion in new issuance for the five largest hyperscalers. It's not going to slow down. Hyperscalers have already surpassed Moody's full year estimates for debt year to date. And I think you're going to see those hyperscalers continue to come to the debt markets to finance their CapEx. The only difference is that after a couple of these deals, investors are expecting a lot more concessions on these deals. So you could see these deals come out with a little more spread on them, and I think that's going to entice investors to get involved. If you don't see the extra concessions, you will not see investors get involved. US non-financial corporate bond issuance for the first five months of 2026 totaled about $956 billion, again, up 43% year over year. So there's a lot of new paper coming to market and It's trying to satisfy that demand for corporate credit. We've been strong proponents for corporate bonds. over treasuries in this kind of rate environment. And I think so far this year, it's paid off.

George Mateyo [00:11:05]

Well, speaking of paper, Steve, there's a lot of paper gains that are going through the earnings statements these days in the sense that a couple of companies have reported massive increases in earnings, but a lot of that's on paper, right, in the sense that they have-- I don't call them real earnings. I guess they are to some extent, but there are a lot of unrealized gains on prior investments. What's your thought on the market kind of processing earnings that has just been spectacular, but again, maybe artificial at the same time?

Steve Hoedt [00:11:31]

Yeah, I think that the reaction to the market, to this earnings explosion, which has been driven by a whole host of things, but part of it is for sure what you just mentioned, the paper gains. It's been the mark, the multiple that they're willing to pay, that we're willing to pay for these earnings down. So if you look Back last October, the peak for the forward P multiple for the S&P 500 was just a little bit more than 23 times. And I think back at that time, we talked about how we thought that the market's valuation at that point in time was extended and we needed to see earnings pick up the baton. They certainly picked up the baton. But I think that the quality of those numbers is not necessarily what we would want to see. So the markets reacted to that rationally and has taken the multiple down. You might not realize it when you look at the S&P 500, but the multiple for the S&P 500 right now is trading in just a little less than 20 times. We're at 19 and a half about a week ago. And that was the same level that we were, George, back at the trough in March when the market sold off. We've seen the market rally as earnings have exploded, but we've seen the multiple remain pretty tame. And that, in our view, is a pretty rational response to what's going on in the earnings line.

George Mateyo [00:12:59]

And how are you thinking about energy these days, Steve? I know that's also been an important sector in terms of earnings gains, but we've seen a lot of volatility there too, given what's happened in the Middle East.

Steve Hoedt [00:13:09]

Yeah, the situation there remains fluid at best. Tight supplies globally, we've eaten through a lot of inventories, price has moved up, I think that the magic number for the pain point tends to be somewhere north of 90, anywhere between 90 and 100, you start to see people squawk about it. It feels to us like we're just at the top end of this big trading range that we've been in for oil now, which is basically 65 to 95. And in between 65 and 95, energy companies mint money and people don't complain a lot. And if you get outside of those ranges, either higher or lower, it creates pain points either for the consumer on the high end or energy companies on the low end. and something happens to bring it back to that equilibrium. So we continue to exist in this area where the energy companies are being able to maximize their profits because the refining at current prices is just extremely profitable. we don't really see much that's going to take us out of there. I do feel like when you look at the inventory situation, though, it's going to have to be addressed in the next three to six months or else it's going to become potentially problematic for the global economy. We've... We've eaten through a lot of the buffer in order to keep prices from getting out of control. There has been some demand destruction, but most of that demand destruction has happened in China, where they've had a whole host of other things available to them and lots of levers to pull on for the Chinese to kind of control things much more so than in the West. So we'll just have to see how it goes. I don't think we're going to get some kind of a crazy super spike, though. I think that kind of thing is off the table.

Brian Pietrangelo [00:15:10]

So, Steve, one final question for you on the podcast. I'm going to tie a lot of things that we discussed today together. And when you think about the sort of slightly artificial gains on the paper that George talked about with corporate earnings with some of the hyperscalers, you talk about Rajeev and the additional debt issuance by the hyperscalers. You talk about the Fed reaction coming up in September, and you talk about September as usually an unfavorable month. So when you look out in the next 60 to 90 days, Steve, what are maybe some warning signals you're looking for in those corporate earnings that may be a little bit disruptive to the market?

Steve Hoedt [00:15:46]

Well, I don't know if it's just the earnings, but what's been funny to me to watch is that the two worst months of the year from a seasonal perspective are September and August. February is also pretty bad too, but August is not typically a good month, right? And I think a lot of people came into this month thinking that, okay, this is a month where we can go take a vacation. I know a lot of us have vacations planned and other things, but take a vacation, just not pay too much attention to what's going on. And then all of a sudden, we got a breakout to new all-time highs by the S&P 500 within the last week. And I think that that has caught a lot of people on the wrong foot who maybe were thinking that we were just going to consolidate here. I know I was one who thought we were going to consolidate for a while given the seasonals and the news flow that we've been talking about on this call. The breakout to new highs kind of puts that into a different perspective because you get the whole FOMO business, fear of missing out, where you have people decide to pile into stuff. So it's been a pretty good week for the market on the heels of that. And the question for us is, it gonna continue? And I think when you get a fairly benign jobs report today that takes the prospect of a Fed rate hike off the table, it gives us the opportunity to have that positive narrative continue to work in the market. And the earnings numbers have been plenty good. So if people are willing to focus on that, that gives you yet another reason to push the market higher here during a window of time when it typically doesn't. And I've talked on this call before that when the market behaves in a way that is counter to how it historically has and how it should, you should pay attention to that. So if the market says we're supposed to go down at this point in time during the year or we should be consolidating and it doesn't, That tells you just how strong the underlying bull market is.

Brian Pietrangelo [00:17:50]

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

Disclosure [00:18:26]

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

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