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May 15, 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, May 15th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We have a tremendous amount of content to share with you this morning, so thanks for joining us. We start off today by taking a moment to honor those in the police force and local law enforcement, as today is Peace Officers Memorial Day. Now, Peace Officers Memorial Day honors the federal, state, and local law enforcement officers who made the ultimate sacrifice. It is held annually during National Police Week, which is this week, and we certainly have an opportunity to take a pause and honor those that have died in service. So thank you for that quick moment of silence. And we also thank all of those that are out there in service on a daily basis, helping to serve and protect. Thank you so much. And on an exciting note, here in our own Cleveland, Ohio police force, we have an opportunity to congratulate all of those that were recently promoted, including Dan Day, promoted to lieutenant in the police force within Cleveland. Thanks so much and congratulations to all. And also on the celebration front, we are in the season of graduation. So congratulations to all the graduates at all levels, including, most specifically, also high school and college graduates as they transform from their academic seasons to another chapter in their lives, whether it's more school or on to the professional world. Either way, we do congratulate them and congrats to all the parents out there helping their kids along the way. 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. Rajeev Sharma, Head of Fixed Income, Michael Kehoe, Senior Lead Research Analyst, and John Simmons, Senior Research Analyst. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series, addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic news, we've got three key economic releases to share with you, plus two other updates on what's happening around the world. First, earlier in the week, we have existing home sales, which increased 0.2% month over month in the month of April, and that was a little bit subdued as mortgage rates continue to remain elevated. As you might recall, Mortgage rates had actually dipped prior to the Iran conflict, and with the inflation component of what we've seen in the last two months, rates have gotten backed up again. So 30-year mortgage rates are above 6 and a little bit in that arena, which continue to be a little bit apprehensive. In addition, forecasts tell us that the spring selling season is likely to be soft. And second, probably the most important report of the week, we got the CPI Consumer Price Index measure of inflation and on a month-over-month basis for the month of April, all items were up 0.6% and core, excluding food and energy, up 0.4%. Now not much of a surprise that this is the second month that CPI inflation data was elevated due to the increase in oil and other pass-through entities from oil and the crisis in Iran. When you translate that to inflation year over year, it comes in for April at 3.8% for all items and 2.8% for core excluding food and energy, again, higher than the previous months. Again, this has implications for Federal Reserve policy. We'll check in with Rajeev on that component when we get to that part of the podcast. We also received the producer price index or PPI data for the month and it continued to increase as well, which is not a surprise. When you take both CPI and PPI numbers, it flows through to the PCE, or personal consumption expenditures measure of inflation, which we get at the end of the month, which is the Fed's preferred measure of inflation. So we'll see a little bit of an increase there, likely to be expected. And third, just yesterday we got the report for the advanced monthly retail sales, which for the month of April increased at a 0.5% clip. Now, looking under the hood, a lot of that has to do with price increases. And the advanced retail sales report is a nominal report. So, when prices get inflated, it increases the number. So, we tend to discount that. And looking at the number, a 0.5% increase, if you take out some of the inflationary pressures on the prices of gasoline, overall advanced retail sales for the month of April 2026 were effectively flat. Now that comes off the heels of two pretty decent months in March and February, so we will continue to monitor this and determine whether this is a trend where there's true consumer spending that is slowing, or there are fluctuations due to price increases, or if the slowing in consumer spending is due to higher price increases. We'll look at that on an overall basis in the next coming months. In addition, two other newsworthy items this week on Wednesday, we had Kevin Warsh, who was nominated and has now fully been confirmed by the Senate to be the next Federal Reserve chair. Now this coincides with Jay Powell's expiration as Fed chair today on May 15th, so there'll be a smooth transition to Kevin Warsh as the new federal chair. For the Open Market Committee, however, we have the news that we released a couple weeks ago that Jay Powell has decided to stay on as Fed Governor because his term at Fed Governor stays through 2028, and he doesn't know exactly how long he'll stay, but will continue to watch this as the makeup of the Federal Open Market Committee is now intact for the next upcoming meeting on June 17th. And finally, we've got the trip by President Trump over to China to meet with President Xi Jinping. And the conversation seems to be going well, but they're sticking to their topics of conversation. And we'll get more on that update when we have our deep dive today into the international markets with Mike and John. So stick with us as we've got a special segment in our podcast today, delving into the deep side of what's happening in the international markets, what's going on in performance, what are the trends that we're seeing. So we'll have a nice, robust conversation with both Mike and John on that topic. But first, let's turn to Rajeev to get his take on what the CPI and PPI inflation reports mean for the Fed. Also, more comments on Kevin Warsh and what's going on in the bond market this week. Rajeev?

Rajeev Sharma [00:06:58]

Well, Brian, we did have two back-to-back inflation reports this week. Both of them were hotter than expected readings, and that definitely impacted the bond markets and caused some shifts in rate cut expectations. CPI for April came in above expectations, and that reinforced the sentiment that inflation is stubborn, it's sticky, and it's well above the Fed's stated 2% target. You also had PPI, which rose 1.4% month over month, and that was also more than double consensus estimates. So with PPI rising faster than CPI, there is a signal on the market that potential pipeline price pressures are working their way to the consumer. How did the bond markets react to this? Not very well. Treasuries sold off sharply. We saw the 10-year treasury note yield hit their highest level since July of 2025. The 30-year also broke through at the 5% level. And there were no buyers in sight that were going to take advantage of 5%. I think 5% was a psychological point for the 30-year. And you'd expect buyers to step in at that point, but they just were not there. The implications for the Fed can be seen in market expectations, where rates traders are now starting to increase the odds of a rate hike over the coming year. This is a complete reversal of just where we were a few weeks ago when rate cut expectations were the consensus. And with that, the two-year treasury note yield, which is most sensitive to Fed policy, rose to 4.07%. And the 10-year currently is trading around 4.55%. So again, we've crossed through the 4.5% point on the 10-year. Again, buyers are not stepping in yet. Inflation remains the overwhelming risk to the economy. We did hear from Fed Governor Michael Barr this week, he pointed out that traders right now are pricing in about a two-thirds chance that the Fed will hike interest rates in December, with the full quarter-point hike now seen by March 2027. This is all becoming a very complicated backdrop for incoming Fed Chair Kevin Warsh, who was narrowly confirmed this week by the Senate to lead the U.S. Central Bank. The path is now pretty clear for Warsh to be sworn in, and outgoing Fed Chair Powell's term ends today. So Kevin Warsh was really chosen with the expectation that he would come in there and push for rate cuts, but the bond market is already pushing yields higher. This essentially tightens financial conditions before Kevin Warsh has taken any action. So the first thing that Kevin Warsh will have to deal with is this growing number of Fed voting members that are calling for the Fed to change its bias from an easing stance to more of a neutral stance. And that would allow the Fed to have a little more flexibility in where they take the Fed policy next. We did hear from Fed President John Williams. He spoke this week. He said that monetary policy is in a good place. He doesn't really see any reason to raise or lower rates right now. He also stated that supply chain pressures are building. That could sustain elevated goods inflation. So all of this is quite a backdrop for the bond market. I would have to also point out here, though, that credit spreads have been extremely well-behaved, even in this backdrop. Both investment-grade and high-yield spreads, they tighten modestly on the weak. That's a resilient sign that even in the backdrop of back-to-back hot inflation prints, rising treasury yields, transition at the Fed, credit spreads just continue to outperform, and there's a strong demand for these investor-grade bonds. In fact, we had 34 investment-grade issuers come to market this week. They raised over $50 billion. All of the deals are priced very well, which shows that investor demand for corporate bonds remains intact.

Brian Pietrangelo [00:10:42]

Hey, Rajeev, before we let you go, let's talk about the bump of Stephen Miran by Jay Powell staying on as Fed governor. And that maybe quashes a little bit of the dissents, but there still might be some. What do you think? I think it's a June 16th, 17th meeting is my reference.

Rajeev Sharma [00:10:56]

Yeah, I think it's a very good point. I mean, Steve Miran has been in there, been a strong advocate for rate cuts. I think his first vote, he voted for a jumbo rate cut of 50 basis points right off the bat. You're not going to have that voice now. And Jay Powell is going to stay on as a Fed governor. So it's going to be very interesting right now. I think that Powell has a lot of goodwill at the Fed. I think a lot of supporters at the Fed, if he's the voice of calm and we should not be doing any rate cuts right now. He's going to get some other Fed governors to side with him. And I think that makes Kevin Warsh's job a little more complicated to drum up the support that he needs for Fed rate costs. Great. Thanks, Rajeev.

Brian Pietrangelo [00:11:41]

Spot on as usual. Appreciate you having me this week. We're going to take a little bit of pause now and pivot. In that, we've got a deep dive conversation today on the international markets and what trends we are seeing in that area. So we're going to welcome two individuals from the Chief Investment Office Research Team into the call. We've got Michael Kehoe, Senior Lead Research Analyst, and John Simmons, Research Analyst within the department. And so welcome to both of you.

Michael Kehoe & John Simmons [00:12:08]

Thanks, Brian.

Brian Pietrangelo [00:12:10]

So John, let's start with you. Let's give our audience members some perspective. Let's start with the performance of what's been happening in international markets. If we go back to 2023 and 2024, the United States markets handily outperformed non-US markets. But then the pivot came. So in 2025, the non-US or otherwise known as international markets performed very well, up 31% versus the S&P that was only up 18%. What drove that outperformance?

John Simmons [00:12:38]

Yeah, Brian, great question. And thanks for having me on the podcast this week. So if we rewind a little bit back to the end of '24 and into early '25, the US was coming off another strong year of outperformance, but we really started to see some tides start to shift. After a long stretch of aggressive rate hikes post-COVID, broadly, the global central banks began moving towards easing. That's generally supportive for equities. And importantly, it helped broaden market leadership beyond very concentrated U.S. markets, particularly the Magnificent Seven, which really drove a lot of the returns in the prior years. Additionally, in early '25, if you can remember back, Germany announced a significant 500 billion euro fiscal package that focused on both infrastructure and defense spending. And this really signaled a real shift towards pro-growth policy that didn't really just impact Germany. It helped re-rate and ultimately bolster European equities more broadly. Specifically, an area to note here is European financials, which is a really large weight within the MSCI EFIE index, which is a standard industry kind of developed international index. That European financial segment really stood out with strong performance. Bank and insurers benefited from strong balance sheets, still somewhat elevated rates, which somewhat in margins, and improved growth expectations tied to ultimately fiscal spending. So there were strong country-level performance, and you saw that Japan as well with a weaker yen, accommodative policy, and improvements from a corporate governance perspective. But ultimately, wrapping all of this up, just the valuation piece was huge. And the starting point of valuations is so important. So really with the macro and policy backdrop improving, it didn't take much to trigger a significant rotation.

Brian Pietrangelo [00:14:52]

So let's move to 2026 year to date now. And basically the United States and the US versus international developed markets that you just mentioned, or about even at up 9% year to date, but emerging markets is up 23%. What's going on there?

John Simmons [00:15:09]

Yeah, and it's definitely been a very interesting start to 2026, to say the least. We've had plenty of volatility, whether it's the war in the Middle East, sell off in software, energy concerns, private credit fears, but really like broadly equities have stayed very resilient. And the short answer to your question is, Markets, and especially emerging markets, have been major beneficiaries to anything tied to the AI story. The majority of emerging market outperformance has really been driven by a concentrated bunch at the top of the index. So just to put a few numbers around that and around that comment, and actually not sure many really realize this, but the emerging market index is even more concentrated than the S&P 500. So I'm going to repeat that because I think it's pretty important. The EM index is more concentrated than the S&P 500. And we all thought in the US here as investors, we thought the MAG 7 was very overconcentrated. When you look at the EM index, the top three names, including Taiwan Semiconductor, SK Hynix, and Samsung, make up near 30% of that entire index versus 20% in the US between Nvidia, Apple, and Microsoft. So yes, EM is up 20% plus this year, but it's really been a targeted group around semiconductors, the AI supply chain story, and really just the narrow leadership group. So I think overall, the trend I'm watching here is just, will we see a broadening of overall performance and will this index kind of broaden out. But right now, we're seeing it very concentrated.

Brian Pietrangelo [00:16:57]

That's great context, John, for our listeners. And the last piece of this puzzle is a lot of times markets and economies move at different times, but you would have thought that with the implementation of President Trump's tariffs back in April of 2025, that would have had a negative effect on international markets, but the opposite has occurred. What are your thoughts in this area?

John Simmons [00:17:17]

Yeah, Brian, intuitively, you would expect tariffs to pressure the international markets more than the US. And initially, we saw that. If you think back to Liberation Day last April, when new tariff measures were announced, global markets sold off significantly. The S&P 500 dropped over 10% in two days, and you saw a risk-off move across regions as portfolios were broadly overweight US equities and you started to see investors start to reallocate. But what's interesting here is how quickly that narrative really shifted. It was pretty much a week later, the initial tariff policy was rolled back and investors realized there was probably room for negotiation here. And another reason on this front, both international and EM have held up relatively well, is because countries like China and those within Europe and others were already in a different position than prior cycles. Going back to that Germany example I touched on earlier, there's been a broader shift toward economic self-reliance and fiscal expansion. Countries are broadly better positioned and less willing to be passive in global trade dynamics. So instead of being purely reactive to US policy, you're seeing more localized growth drivers, domestic spending, industrial policy, and just overall more strategic investment in kind of that home country bias.

Brian Pietrangelo [00:18:52]

Perfect, John, thanks for the context. And you mentioned China as one of your thoughts there. Let's bring in Mike Kehoe. to talk more in depth about some of those areas. And most specifically, we can't talk international markets without talking about China. President Trump was just there. There's a lot going on. What are the major themes they see, Mike, going on in China and a little bit about the trip from President Trump?

Michael Kehoe [00:19:14]

Yep, thanks, Brian. China remains definitely one of the most important and arguably more complex stories in overseas markets, as it's really a tale of two economies. On one hand, you have the traditional parts of China's economy that are still under pressure. The property market hasn't fully recovered, consumer confidence remains soft, and demographics continue to be a long-term headwind for the country. At the same time, China is also aggressively repositioning itself around strategic industries. The biggest theme there, of course, are industries related to artificial intelligence. And the Chinese government has made it clear that it views advancements in AI as key to their ability to achieve their stated goal of global tech dominance by 2030. So you're seeing massive investment into data centers, chips, and industrial automation in China by both the government and private sector. Taiwan is also a huge part of the story, of course. Taiwan and TSMC are effectively the backbone of the global advanced semiconductor supply chain. So as AI adoption continues to accelerate globally, the importance of semiconductor manufacturing and Taiwan's role within it becomes increasingly more significant. Although Taiwan seemed to be an area of focus for both sides on President Trump's trip to China this week, there didn't seem to be any major developments one way or another with respect to Taiwan. But overall, I would just frame China as sort of transitioning from one growth model to the next. And while this transition and the related geopolitical tensions have led to volatility in Chinese equity markets, it may also support new long-term themes for global investors to capitalize on.

Brian Pietrangelo [00:20:50]

Great, Mike. And as our avid listeners know, we typically have talked about Iran and what's going on there for about the last eight weeks. Usually the update comes from George, but let's get your take on it. It's got some major implications for not only international markets, but for us, but more so international markets. What are your thoughts and trends there?

Michael Kehoe [00:21:09]

Yep, as you guys have talked about, obviously, the first implication is with respect to oil prices. And higher oil prices matter because they can ripple through the global economy pretty fast, impacting everything from transportation and manufacturing costs to airline profitability, consumer spending, and ultimately inflation expectations as well. What's interesting, though, is that markets so far have remained relatively resilient. So we've seen some spikes in volatility, but overall, investors seem to believe the conflict and its related impacts are more likely to remain relatively contained. I think the second implication, and John talked about this, but is with respect to central bank policy. So, over the last year, markets have increasingly expected easier monetary policy globally as inflation has moderated. But if energy prices remain elevated for an extended period, that complicates the path for rate cuts as central banks aim to avoid a re-acceleration in inflation. From a market leadership perspective, earlier in the year, we saw a rotation into more defensive areas of the market. So, call it energy, consumer staples, utilities, some of the perceived sort of beneficiaries of higher energy and input prices. But more recently, we've seen a resurgence in tech dominance and momentum stocks as optimism around AI has driven rallies in semiconductors and other related areas. I think it's also a good reminder of Ben Graham's famous saying that “in the short run, the market is a voting machine, but in the long run, it's a weighing machine." So in the short term, geopolitical events like the Iran conflict can drive sharp emotional reactions and spikes in volatility. But over long periods of time, markets tend to refocus on fundamentals, things like earnings growth and cash flows. And that's why it's important for long-term investors to maintain the long-term view and avoid overreacting to short-term noise.

Brian Pietrangelo [00:22:57]

Great, Mike. Now to finish up, let's give each of you the opportunity to share with our audience something that's on your mind that you think might be interesting to share with them. And we'll go with John first. What are your thoughts on something interesting?

John Simmons [00:23:08]

Yeah, and I appreciate it, Brian. And I think it's a good piggyback what Mike was just talking about is I would say just, it's a great, this period over the last year, year and a half, where international and EM has done very well. It's a great reminder to be diversified within your portfolios. There are really good companies outside of the US borders, and I think it's important to remember that. And I think another key point here is, just know what you're invested in. I think make it a point to really understand what you're buying and understanding the underlying indexes that are out there. There's not really one-size-fits-all in terms of whether you want to be passive, whether you want to be active, but just understanding what really is underneath the hood is very important. So, this, from our perspective, we definitely tend to favor active management in this space in a way to, it's really a way to avoid the concentration that I mentioned. And at the top of these indexes, many of the managers that we talk with and invest with really are finding compelling opportunities and really just quality businesses but really being selective in particular areas. So that's what I would leave listeners with is just know what you're buying and continue to be broadly diversified.

Brian Pietrangelo [00:24:42]

And Mike, you've got the last thought.

Michael Kehoe [00:24:45]

Thanks, Brian. I think this is not necessarily specific to international markets, but I think one of the more interesting dynamics in markets globally right now is the tension between the AI boom and the fear of technological disruption. So we're seeing incredible enthusiasm, as we've talked about, around AI infrastructure or the so-called halo trade, heavy assets, low obsolescence, where investors are rewarding businesses tied to semiconductors, power demand, data centers, and other physical infrastructure. But at the same time, we've seen a really broad sell-off in software stocks this year as investors try to assess the impact of AI on business models and try to discern which companies stand to benefit and which might be disrupted. I think this is really important because for years, markets rewarded asset light capital-like growth almost indiscriminately. And now investors are increasingly asking themselves, how durable are these business models and how hard are they to replace? And so beneath the surface, I think it's more than just sort of an AI story. I think it's really a market that's trying to reprice durability, scarcity, and long-term competitive advantage against the backdrop of rapid technological innovation. And so we're seeing, I think, both volatility and change in leadership across the board as investors try to pick the winners in this new environment.

Brian Pietrangelo [00:26:03]

Well, thank you for the conversation today. Rajeev, Mike, and John, we appreciate your insights. And before we close, we've got two updates for you. One is to bring attention to you that on June 9th, we will be having a national call where we will be providing our mid-year outlook update for what's happening in the markets and the economy. So be sure to join join us on June 9th, we will continue to provide updates along the way between now and then. And second, when we come to next Friday, on the 22nd of May, we will be taking that day off in observance of the upcoming Memorial Day weekend. And we would be remiss if we didn't take a moment to honor all of those who have given their ultimate sacrifice of life throughout the military and/or organizations across the world, all of those who have, again, given that opportunity for the ultimate sacrifice. Thank you for joining me in that effort, as we will be off next week. So thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So, reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you in two weeks to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:27:31]

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May 8, 2026

Brian Pietrangelo [00:00:00]

George Mateyo [00:04:19]

So quickly on Iran, I think the situation is much the same from the prior week, Brian. We haven't seen too much forward progress. We haven't seen too much backward sliding or degradation into a re-escalation of the conflict. I mean, there were some fits and starts, and I think the market kind of took heart in the fact that apparently there was a one-page memo of understanding, some type of MOU between the two parties that talked about a framework for a discussion or a deal, at least to kind of get people to the table again. There might have been some false hope in that, but nonetheless, I think the market view that is a better outcome than a more protracted engaged conflict. And again, there are several rumors around additional tax thereafter, but I think overall we're still kind of staying the same place we were this time last week, so not too much change there. And again, I think the bigger impact for the economy is how long this conflict might last. And of course, we have to watch the price of oil to really understand that. And as we get to the summer, I think it'll be important to see how that plays out in terms of prices at the pump and so forth. So dovetailing that into the economic readings this morning, I do think it's important to watch the conflict of Iran in Iran and in the Middle East with respect to wages. Wages came in this past month slightly smaller at a smaller increase than the prior month. So again, wages are still growing, but a slightly slower rate. And that's just important because when you have prices that pop as they are, certain segments of the economy will be impacted by that. And indeed, certain companies, when they reported earnings this past week, also talked about some pressures within the consumer. Some restaurant companies and some other food companies talked about really some straining economic pressures on the low end of the wage spectrum. And again, if wages are softening a little bit and prices are going up, then that just makes it really difficult for some consumers to make in meats, unfortunately. So I do think this is still the economic situation that bears close monitoring. The numbers themselves from the overall labor market suggests that the wages are softening a little bit. The number of jobs being created are still positive. But I think there too, there are some divergences and some really stark divergences with inside the overall labor market in the sense that there are certain segments that are doing quite well and adding jobs. There are other segments that are probably being impacted by AI and other things too. So we again have this divergences, these divergences within the labor market too. And that translates further into what we've seen in the stock market, which we'll get to in a second or two with Sam and talking about what's happening with the equity market. But my perspective, Rajeev, As I think about putting all this together, it suggests to me that the Fed's still on hold, frankly. I think there's still a stalemate too. There, of course, is some ongoing debate within the different members about what a new Fed share might bring in terms of him wanting to maybe lower rates. But based on today's reading, I don't really see the Fed doing anything in the near term, but maybe you see it differently. So how would you assess out the Fed direction going forward from here?

Rajeev Sharma [00:07:17]

Well, George, I would say that divergence is the theme with the Fed members right now. I think there's plenty of Fed members that feel that we should not be on an easing path right now. We had three dissents in the last FOMC meeting. I think the consensus is we have at least three dissents going forward as well. There's no urgency for the Fed to do anything right now as far as cutting rates. because the inflation picture is still murky. It's not where it's supposed to be for the Fed. I mean, we've heard from Fed Chair Powell in the past that if we don't get inflation at 2%, you can't cut rates. And everything could change with the new Fed Chair. You can have Kevin Warsh come in there and say, you know what, let's not have a hard target of 2%. Let's have a range. We've seen other central banks around the globe with a range, with the midpoint. For instance, Australia, 2% to 3% is their range, and they say the midpoint is 2.5%, and they've actually hiked rates three times already. So there is this growing consensus in the market that the Fed's not going to do anything. They're going to keep rates where they are. And if anything, there is about a 50% chance that there will be a rate hike sometime in early 2027. So things have changed quite a bit. from where we were at the start of the year. And you see that reflected in the yield curve this week. Obviously, any kind of peace talk, any kind of opportunity for the market to move away from the conflict in Iran would be welcomed. But as long as this conflict continues, I think the question about inflation is still there. How high does inflation go? How far away from the target do we go? That's going to be something to keep an eye on. We did see the 10-year treasury note yield decline from 4.425% on Monday to 4.366%, so about a 6 basis point decline in the 10-year. We had April's non-farm payrolls coming out higher than expected, so treasury yields trimmed earlier declines for that. I mean, we have an unemployment rate right now holding around steady at 4.3%, and that's right in line with forecast. And now the two-year Treasury note yield, which is most sensitive to Fed policy, we saw declines there by about 6 basis points this week to 3.889%. So bond investors are taking the job data in stride. There's less of a focus, in my opinion, on the labor market and more of a focus on inflation and how far away we get from the 2% target from the Fed. That's the second part of the Fed's dual mandate, and energy prices are front and center. So if you see oil elevated, You're not going to see a Fed in any rush to cut rates. Add to that the Treasury Department's quarterly refunding announcement that we saw this week. It was released and they said the Treasury would need to borrow more than $2 trillion from the private markets in fiscal 2026. But the number is high, but it's not really far away from what the estimates were. So the market took that in stride as well. And another area that the market is taking very much in stride is corporate bonds. We look at credit spreads. We saw some modest widening this week compared to treasuries. Specifically, we had one basis point of widening for investment grade bonds. We had two basis points of widening for high yield bonds. So for this week, unlike last week, corporate bonds did underperform U.S. treasuries on a relative basis, but investors are still hungry for corporate bonds. You still see inflows into the corporate bond market. You want to be playing in these names because you do get very good carry, good coupons on very, very high quality companies. The only thing is when we start seeing new issuance in corporate bonds, investors want to get compensated for that. So you're going to start seeing a few more basis points and concessions for these new deals. And I really think if you look under the hood for investor grade, you still have value in the financial sector, which trades wide to other sectors. So I think investors are really picking and choosing right now where they want to invest. I still believe corporate bonds over US treasuries. And I think that the carry there makes a big argument for that.

Brian Pietrangelo [00:11:37]

So, Rajeev, before we let you go, let's keep our listeners up to speed. We're a week away from Fed Chair Powell's expiration of his chair position, and we're still waiting for Senate confirmation on Kevin Warsh, which is expected to happen next week sometime before the 15th. But one other subtlety, because he's staying on one of the doves, Stephen Miran will no longer have a seat at the table. What are your thoughts on that?

Rajeev Sharma [00:12:02]

Well, Stephen Miran made a lot of noise about cutting rates. I mean, he's been a very big advocate for, you know, we should be doing jumbo rate cuts. I think the first time he was able to vote, he voted for 50 basis points. He, after that, continued to vote for 25 basis points. I do think it's gonna be interesting to keep Fed Chair Powell as a governor. because I do think that there is a lot of goodwill that he's created in the Fed, and they will support a lot of his ideas. I think the bar for Kevin Warsh to cut rates has risen. It's not going to be as easy as many people have thought that Kevin Warsh gets elected, gets nominated, and he goes in there and starts cutting rates. We must remind our listeners that you need consensus, and I think that Kevin Warsh has a big job in front of him to get that kind of consensus.

Brian Pietrangelo [00:12:54]

Great. Thanks, Rajeev. And now let's bring in Sam Snyder, Director of Investment Research on our equity team, to give us an update on the stock market and what's happening in that area. So, Sam, give us a thought on what's happening this week.

Sam Snyder [00:13:06]

Hey, Brian. Thanks for having me. S&P 500 is up over 2% this week on improvements in the situation in Iran, along with impressive earnings in the first quarter. Mostly tech stocks have been moving up and down. Consumer is hung in there with further evidence of the K-shaped economy, as George had mentioned earlier. In short, gas prices hurt the middle income consumer and the tax refunds tend to benefit the higher income consumer. Importantly, gas prices are, you know, more psychological approximate impact, whereas tax refunds tend to trickle out throughout the year. And you heard that in some of the companies that reported this past week. So also this week, So a lot of smaller cap tech names report, but the CPU providers like Intel and AMD really blew expectations out of the water. Some of these names are just surpassing.com peaks, which really goes to show how important it is to be conscious of price paid despite bullish narratives. As the quote from Warren Buffett goes, Price is what you pay and value is what you get. So we keep that in mind on the team here. Looking beyond the household names, there's many players that are attached to the AI data center trade that have been having quite the run lately, broadening out that we've talked about on last week's podcast continues. Though the magnitude of these moves seems a little outrageous, particularly in the analog semiconductor space. In the past month, we've seen some of the old winners like NVIDIA, Broadcom hand the baton to these smaller names that have jumped in some cases, 50% in a matter of days or weeks. So this market almost feels, I would characterize it as a little like a game of whack-a-mole. And I've never seen a market move this fast in my career, and we're doing our best to keep up by skating to where the puck's going, not where it's been. Clearly, the market's, it's begun to focus on the industrial and consumer implementation of AI capabilities, which we identified a few months ago. And we think networking buildout could be the next bottleneck. This market speed really has made it tough for active equity managers this year.

Brian Pietrangelo [00:15:20]

Yes, Sam, give me one other idea, and that is, what are you seeing in the markets beyond those headlines you just mentioned and the tech companies?

Sam Snyder [00:15:30]

Yeah, so non-tech related trend we've been focusing on has been the move in agricultural products, agricultural commodities, the war has clearly impacted fertilizer markets. That's well known at this point. We think, though, that the impact is not quite done. Whether you look at protein or grain markets, we're seeing the potential that prices go higher before they go lower for a few reasons. Higher prices have not induced new supply. You learn in Econ 101 that the cure for high prices, to an extent, is high prices. Though it seems that timing is left out of the equation, and that's where we think there's potential opportunity. If gas prices come in, we could potentially see demand pick back up, especially on the protein side. So you couple that with the supply not really coming in so far, and that equates to potentially higher prices in the near term. And then another segment of the commodities world last year and earlier into this year, which feels almost like a lifetime ago, precious metals were all the rage and oil was a consensus short and oversupply worries. I think it's important not to forget that that was only a few months ago. We think that as we swing back to perhaps a pre-war playbook, and not to be overly optimistic, but hopefully a pre-war playbook, precious metals and industrial metals alike could be an area of interest. The thesis here isn't that different than it was in January. So now that it looks as if the war situation is resolving itself a bit, or at least moving in the right direction. It'll be telling to see where some of these war impacted ideas settle.

Brian Pietrangelo [00:17:10]

Great, thanks. And our final segment, we'll go back to George. There's some sort of late breaking news in the last 24 hours or so with regard to tariffs and keeping our audience up to date on that. George, what are your thoughts?

George Mateyo [00:17:24]

Brian, what you're referring to, of course, are certain statutes with which the tariffs were first implemented. And yeah, this is the second time, I think, now that the administration has tried to enact some degree of tariffs, and various courts have decided that's not really quite allowable, frankly. I won't get into all the constitutionality of it and all the details, but suffice it to say, tariff rates are also probably not going to be as elevated as once thought. You know, it's curious, I still think trade is going to be a point of contention, probably a point of focus for the administration, especially as we enter the second-half of this year. And maybe after the midterms fade, because this is still something the administration thinks that it's within their power to try and effectuate in terms of real policy change. So I think it's still going to be with us, but I think the intensity, as we've discussed on this call and other places, is going to be less acute. And that's probably somewhat positive for the inflation backdrop, too. But I think the uncertainty is still going to be there. There is other news, Brian, beyond that, that the administration talked about trying to get the EU back able by, I think it was July 4th to also try and get a few trade concessions between us and the EU. So I don't think this is going to go away. This is not a story that's fading, but it's probably fading in terms of importance. And I think what Sam talked about, we talked a lot about AI policy. That's going to continue to be front and center for us as well. Politically speaking, of course, the midterms are going to start becoming more prominent with inside the overall narrative. So I think that the tariffs and the trade situation, while important, is probably going to be lower on the list in terms of overall market moving events.

Brian Pietrangelo [00:19:00]

Well, thanks for the conversation today, George, Rajeev, and Sam. 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 [00:19:35]

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May 1, 2026

Brian Pietrangelo [00:00:00]

Rajeev Sharma [00:04:13]

The Fed really held the rate steady at 3.5% to 3.75%, and that was not really a surprise for the markets. I think the markets really felt that this was going to be a paused meeting. In fact, the market expectations for the Fed really have come down quite a bit. You know, many, many expectations before this meeting were pointing to no rate hikes at all for 2026. So this is the third consecutive cause by the Fed. The Fed continues to operate in some levels of uncertainty. You have inflation that is reaccelerating due to a 20 plus percent hike in energy prices tied to the Iran war. Labor markets are uneven, they're cooling. But overall, the inflation part of the Fed's dual mandate has stalled and is not moving towards their 2% goal. So there really is no urgency, if you will, for the Fed to really accurate now. So I think all of that messaging was consistent with this Fed meeting.

Brian Pietrangelo [00:05:14]

A great summary on that, Rajeev. What was interesting to me is there were four dissents and opinion on the statement. You want to explain that for our listeners, what the dissents mean and why they dissented?

Rajeev Sharma [00:05:26]

It's a great question, Brian, because the big story was not that the Fed paused. The big story was those dissents. There's more internal division than what's expected by the markets. You had four dissents. This is the first time since October of 1992, and that's a big deal. This split the committee. So on one hand, you have Stephen Miran pushing for a 25 basis point rate cut. He has done that consistently in the last several meetings. But then you also have Beth Hammack, Neil Kashkari, Lorie Logan. They're opposing to the inclusion of easing bias in the statement. So what that means is you've got three other members in the Fed that really don't think we should be easing at all or cutting rates right now at all. And even though the Fed didn't do anything for rates at this meeting, the level of dissent shows a very divided Fed at a moment in time where there are risks of rising inflation, geopolitical uncertainty, This is going to make Kevin Warsh's job a lot more harder going forward because he is going to have to, you know, rally the troops, if you will, and trying to get his mandate of, you know, let's let's do a rate cutting. Let's do a rate cutting cycle, continue with the rate cutting cycle. If you have more and more dissent in the Fed, it's going to be more and more difficult to to really get consensus on rate cuts.

Brian Pietrangelo [00:06:50]

Absolutely. So thinking about this big news, (Kevin) Warsh did pass through the Senate Banking Committee on the way to the full Senate. Usually everyone is now at this point in time, there will be full confirmation, which means as of May 15th, he will take over as the new chair from Jay Powell. But also probably the most interesting fireworks from the press conference in the FOMC meeting this Wednesday were Jay Powell's remarks that he's going to stay on as governor. You want to talk about that, what it means for the Fed, the committee, and what it means overall?

Rajeev Sharma [00:07:20]

I think Fed Chair Powell, in his last press conference as Fed Chair, I think that that was really, there were a lot of fireworks. You know, he used it as a platform to forcefully defend the Fed's independence. Fed Chair Powell warned that political attacks have battered the institution and said he will remain on board, on the Board of Governors after his term. as chair expires on May 15th. Now, this is a very rare move. Many have thought about past Fed chairs. They generally ride off into the sunset when they're done with their Fed chairmanship, and they could write books or whatever they want to do after that. But Fed Chair Powell is really sticking to staying on in the Fed, staying on as a Fed governor. This will add some level of continuity to the Fed, but the transition for Kevin Warsh might become a little more challenging Fed Chair Powell has a lot of goodwill within the Fed. And I think having him on board will defend against some of these thoughts that it's not going to just be, OK, the White House wants rate cuts, and it's just going to go through with that. Again, as I mentioned, you need consensus in the Fed to make those type of rate cut decisions. Having Fed Chair Powell remain on the board, remain as a governor, I think adds continuity, but also makes Kevin Warsh's job a little more difficult. And that's why I feel that this pause that we had was more of a hawkish pause because the markets, you know, realized that, okay, Fed Chair Powell’s gonna remain and that too indefinitely. So what he's trying to do is stay on until he really feels that there's no challenge to the Fed's independence. All the legal battles from the White House and the Fed are done. Who knows when that's going to be. So I think this is going to be very interesting going forward.

Brian Pietrangelo [00:09:10]

Great. Last question for you, Rajeev, and then we'll get George's comments on the recap of the FOMC meeting as well. What does it mean for rate cuts or maybe rate hikes for the remainder of the year? And what should investors think about all of this information and how should they react?

Rajeev Sharma [00:09:25]

So, you know, we started the year off, Brian, with a market that was really convinced that we are in a rate cutting cycle. We'll have five to six rate cuts this year. That quickly changed. We went to, okay, the Fed's latest dot plots pointed to one rate cut for 2026. The market continued to gravitate towards two rate cuts for 2026, started pushing back their expectations to the second-half of the year. I think those expectations have changed considerably as days go on. When we heard that The DOJ was going to drop their lawsuit against Fed Chair Powell. Expectations started rising again that, okay, we're going to have Kevin Warsh quickly nominated. He'll quickly become the Fed chair. We'll start seeing rate cuts. The market started gravitating towards one rate cut for 2026. Again, I think that's coming under question as we talked about with Fed Chair Powell remaining on the board. So right now, I think the market's really thinking about there's no urgency for rate cuts, most likely no rate cuts for 2026. There is growing, there's growing expectations that perhaps there'll be a rate hike, but rate hikes really are going to have a lot to do with how long this war goes on and the how long oil prices remain elevated and how far away from the disinflationary trend we start moving. You know, the Fed wants 2% inflation. If we don't get it, I don't see how the Fed can cut rates. If inflation starts getting stubbornly sticky, you start seeing those expectations of a rate hike. I think for our listeners, I believe that this year is going to be very tough for having any rate cuts at all.

Brian Pietrangelo [00:11:11]

George, anything to add from your perspective?

George Mateyo [00:11:17]

I don't know if dissents are a bad thing necessarily. I think it's probably appropriate that the discussion would be pretty Vigorous, I guess, is maybe a word I use because I think we have such tremendous uncertainty. So I think a little bit of discourse is probably not a bad thing. And I wouldn't do the Fed as being fractured. I think they're probably just a little bit unsure about really where things might play out from here. So I think some discourse and some debate is probably healthy as opposed to trying to get everybody to kind of conform with one central tendency point of view. So I think that's probably how I would characterize it. The market's going to have to wrestle with that, though, because the market is somewhat preconditioned now to expect the Fed to tell them what they're going to do before they do it. And that guidance, as we've talked about, might be less of a factor going forward. But I think it is fair to say that for now anyway, it seems like none and done might be the operative phrase where no cuts this year probably is the baseline for now, but we'll see. I mean, there's a lot of things to go either direction going forward. And I think probably the market took the news in stride about Powell's decision to stay on it for a little longer as maybe a victory for Fed independence, in the sense there were some concerns a year ago and even at the beginning of this year that the overall independent nature of the Federal Reserve might come into question. I personally think that central banks being independent is a good thing for the economy on a long-term basis. So the fact that the chair, the outgoing chair, or Jay Powell more specifically, is opting to try and stick around, does kind of wreak a little bit of the fact that maybe he's getting to the political ring maybe a bit too much for some people's taste, but I think that it is fair to say that maybe the notion that Fed independence is alive and well is probably a good thing and maybe somewhat calming for markets overall. But I think the bigger story that we've seen this week has to do with the, another, I shouldn't say the bigger, another big story rather, has to do with the overall narrative around the economy. And we've seen continued strength there too. We've seen GDP, which is somewhat backward looking, come in pretty much better than expected. There was some pluses and minuses. The trade numbers were pretty soft overall because imports rose so much. But consumer spending was a bit better expected. And what really, I think, kind of captivated the market's attention was just a big build out of capital spending as relates to AI. That kind of bleeds in earnings a little bit, which we'll talk to Steve in a second about that. The other thing I would caveat, though, with respect to GDP numbers, though, is that that's largely before the war broke out. So I think that you'd have to kind of put a before and after dividing line between that. And of course, we're just now in the beginning phase of getting real readout in terms of what the impact might be on the economy from the war. In other words, the consumer spending number talks about being better than expected, might see some softness. I wouldn't be surprised with prices at the pump here in Ohio, hovering around $5 a gallon. That's going to weigh on consumers a little bit. But for now, some of the near-term numbers that we look at, like jobless claims you've often talked about, Brian, were really quite low this past week. Wages were also a little bit higher than expected. So I think we're in a position right now where the consumer, knock on wood, cross your fingers, is still in a pretty good place. And maybe the other thing we have to think about in this environment going forward is in a period now of guns and butter, which is what we saw probably in the '60s, and most people are probably too young to recognize that, myself included, so I'm just looking at history books here. But that was a pretty interesting time where we saw inflation a bit higher than expected, but really what took hold essentially was a really strong capital spending environment, a lot of support from the fiscal side as well, so tax cuts and so forth. And that provided a lot of impetus for just a pretty good environment overall for commodities and stocks, maybe not so much bonds, but it was a pretty ripe environment where the economy was really humming along at a pretty brisk pace. As I said, the central banks were pretty accommodative, so we had a pretty interesting setup from that perspective. And then the fiscal side, again, the government itself was actually in a period of time where they were expanding domestic programs, and of course, also involved in a bit of a skirmish in Vietnam, to put it mildly, and that provided a lot of oomph for the economy as well. That's one thing that I've started thinking about more recently is that we have this period of time now where guns and butter are back. The other thing I would point out this time, though, that's slightly different is that it's not just pure guns. And Steve, I'll pull you into this conversation now because a lot of the spending right now is being devoted towards AI, artificial intelligence. And we saw, of course, some what I consider just extraordinary gains and developments in terms of earnings this week. I'm not sure if you'd characterize the same thing, but it's really been remarkable to just see how strong earnings have been this year on the face of some of these shocks we've talked about, such as the war and other things. So Steve, what's your assessment of earnings and kind of where we go from here?

Steve Hoedt [00:16:20]

Yeah, I mean, the numbers have been really, really good. There's no other way to characterize it. I think I mentioned on an internal call earlier in the week that if numbers had continued to come in at the pace that they had been up to that point that we were staring at a probably a 20% year over year first quarter. And then we saw numbers, especially out of Alphabet, which were just fantastic. And, you know, we saw good numbers from the most of the other mag seven names that reported this week absent for Meta, which kind of disappointed the street. But I mean, it's very clear that for these companies that offer cloud services, that they are definitely seeing a huge tailwind from AI spend and AI adoption, in fact, because that's what you see when you're talking about cloud services. It's AI adoption by clients. It's not just the spend that the cloud companies themselves are having to make for semiconductors and and server boxes and data centers and all that good stuff. So, I think that when you look at the earnings numbers that people had for this year, they were low double digits. And typically, you see those numbers decline as you go through the first quarter, and they have not declined this year, George.

George Mateyo [00:17:51]

What's the backdrop, Steve, as we think about a year forward, if we can? I mean, I know we there's some problems. I guess there could be some parallels if we look too far ahead. But if you think about just how much burns growth has really been concentrated in some of these companies and particularly things like semiconductors, which are still, as I would see it, somewhat of a cyclical industry, right, kind of subject to booms and busts. Is there a concern as you think about next year, maybe, Steve, that maybe earnings growth will come down quite a bit or maybe are we just overdoing it or is this something that's really sustainable that has a year or two more left in the tank?

Steve Hoedt [00:18:31]

Well, I mean, I think that if you go back and you start to think about the parallels to the early 2000s, The real question comes when we think about what's real and what's not with these companies, right? Because there was a tremendous amount of double ordering back then. And I think that we saw all kinds of mayhem when the bubble finally did pop. This, to me, feels a bit more real and grounded. I'm sure there's probably some double ordering somewhere in the supply chain. But as of right now, it feels like the build out of these data centers to support this AI adoption is likely going to continue to move forward a pace. Where are we at a year from now? Probably in a similar place where we're at today. Although I would tell you that we're dealing with something where there's constant innovation, right? So, two years ago, basically people thought that Nvidia was the only way to play this in semiconductors. And then over the last 12 to 18 months, people figured out, okay, well, Nvidia plus Broadcom, because custom silicon is going to be a way to play it. And now this last week, we saw Qualcomm, another semiconductor name, throw their name in as somebody who could be providing custom silicon. And my point about this is, that we don't know a year from now, how many of these or which one of these is going to be the new thing or the big thing, right? There's just a tremendous amount of innovation going on. And I think investors are just going to have to pay attention because you could be an investor in Nvidia today and 12 or 18 months from now, they could be displaced by some custom silicon solution. And we don't even know what it is today. And I'm not positing that that's going to happen. I'm just saying that we're in an environment where things are moving really fast and you have to pay a lot of attention to what's going on with this. We spend probably an inordinate amount of time on it here in our research team, but I would tell you that I think this this is is here to stay is a theme for at least for the next two or three years, because this this infrastructure is not going to get built in a day. These data centers are huge. You drove past one in southern Ohio this week. I have one going up six miles down the road here. Like these facilities are gigantic and they take a little while to get built when they do start building them. And, you know, I think we're just going to we're going to be watching this. in awe probably for the foreseeable future here for two, three years. And it's going to drive numbers for these tech companies, no doubt.

Brian Pietrangelo [00:21:30]

George, let's get the final question for you in this week's podcast. For the last seven weeks, we've put Iran up front and getting your commentary on it. Dare I say, things were calm enough relatively that we could put it on the last part of the podcast, given other items that were more important this particular week. So George, what are your thoughts on updates on Iran and what's going on there?

George Mateyo [00:21:53]

Well, I wouldn't know if they're positive enough to really mirror the fact that other things have taken some airtime Iran. But I think things have been more in the status quo category more recently. And I think there's been some pockets of escalation, some pockets of de-escalation. So to me, it feels like it's been kind of a push this week in terms of the overall impact. But that doesn't mean it's gone away. And the longer this conflict, this war persists, the risk that literally dents the economy because of elevated energy prices and so forth is real. And I alluded to earlier, when we see gas at some pumps, five plus dollars a gallon, at some point, that is going to creep into demand destruction, meaning it's going to cause businesses and consumers to slow down usage of fuel, for example. And that's going to cause the economy to slow. That doesn't happen quickly, I would think. I mean, there is some reaction function. There's some time for that to actually take hold. But if we're still sitting here a month now and we start talking about Memorial Day, I guess the holiday driving season is typically associated with Memorial Day. And if that kind of causes a significant retrenchment, perhaps then we'll have to talk about a bigger slowdown in the economy. And as I mentioned earlier, we have to bookend the recent quarter and first quarter GDP report with the fact that that was, as I said earlier, somewhat pre-war, if you will, we didn't really see much of an impact there. What's striking, and as Steve mentioned, this dynamic with AI is happening at the same time. So to some extent, those two might be offsetting each other. It's hard to say for sure. And it's not lost to me that AI is also going to be a big consumer of energy, and utility prices are kind of a direct output of that. And I think we're probably in a position right now where it's kind of an elongated period of stalemate, which needs probably some resolution at some point. But again, I think the bigger question for the market has to do with some of this AI spending. I don't think that the midterms are going to be much of a factor for the market. That's another thing people are asking about. But I think the overall situation with Iran right now is not great, but it's not terribly either. And I think some of the shock has probably worn off, but the impacts are still there. We just have to wait to kind of see if they take hold and how they play out.

Brian Pietrangelo [00:24:15]

thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. 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 [00:24:48]

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April 24, 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, April 24th, 2026. I'm Brian Pietrangelo, and welcome to the podcast.

For all of you football fans, you're pretty happy as yesterday kicked off the NFL Draft, the annual opportunity for teams to recruit new individuals to hopefully promote them for success in the next coming years for the NFL team. It is being held in Pittsburgh this year and I'm sure all the Yinzers there are having a great time. It also provides the young athletes making the transition from college to professional sports to be a fit with their team that selected them and also weighed into the opportunity to become a professional athlete and succeed on the field and in life. So good luck to all the teams and the draft picks as they conclude the NFL draft in the next coming days.

With that, I would like to introduce our panel of investing experts. Some might say they're top draft picks in their own right. 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 news, we have two key updates on the economic release front, and then we'll talk about some other factors happening this week. First up, we've got the overall weekly and initial unemployment claims report, which showed very stable results at 214,000 claims. And again, this has been stable for roughly the past two years, which is one of the strongest indicators that we have right now for the labor market. Second, also this week, the Advanced Consumer Report came out, known as Advanced Retail Sales, and showed a very strong increase for the month of March, which was a positive 1.7% increase over the prior month. Now this doesn't sound like a big increase, but it is on a month-over-month basis. The caveat, however, is that the number is a nominal number, meaning that it includes price increases, and a lot of price increases came through in auto and in the price of gasoline, obviously, given the oil shock with Iran. So if you knock that down and exclude autos and gasoline, the month-over-month price increase was only about 0.6%. Now that number is still good, and it comes off the heels of last month's report, which showed a 0.7% increase month over month in February. So 2 decent months in terms of showing the consumer spending still has legs, and we'll continue to watch this as a health indicator of the overall economy.

Outside of that, not a lot going on in economic releases this week, so we'll talk about three other topics. Certainly we'll get an update from Iran with George and his comments on what's happening there with the Strait of Hormuz, other extensions of the ceasefire, and what's going on with oil and overall effect of the war. Also, we come back to the tariff topic, which has not been in the headlines recently with everything else going on, but it was interesting that the U.S. Customs Agency launched an online portal earlier this week that allows businesses to request refunds for tariffs that were collected under the International Emergency Economic Powers Act, which was the act used for the tariffs under President Trump about a year ago and was struck down by the Supreme Court. Now the key there is it's not everybody. It's only the businesses that were importers that actually filed the tax return to pay the import tax known as the tariff under the IEPA law. And so they'll have to see how that flows through, but it could amount to about $166 billion in refunds, and we'll try to give you more details as this unfolds over time. And lastly, probably most interesting, Senator Warren had some pretty good comments for Kevin Warsh within the Senate Banking Committee confirmation hearing for Kevin Warsh, who again was appointed and nominated by President Trump to be the next Fed chair within the Federal Open Market Committee, but you have to go through the confirmation process in order to make it through. So we'll talk a little bit about that with Rajeev in addition to the fact that coming up next week is the Fed's ongoing and regularly scheduled Federal Open Market Committee meeting on Wednesday where it's highly likely that they won't do anything with interest rates, but we'll continue to get a read from Jay Powell before his supposed exit next month when his term as Fed chair is supposed to expire on May 15th, whether it does or it doesn't based on whether Kevin Warsh gets confirmed before that or not. We'll also talk to Steve about Q1 2026 earnings and how that's going. But as we always do in the last couple weeks for about a month and a half now since the Iran war began, give an update from George as to what his thoughts are on the Iran war and what's happening in the general economy. So George, let's start with you.

George Mateyo [00:05:18] Well, on the economic side, Brian, it was kind of a late week, I think, overall. I think the biggest headline economic release came out this week was retail sales, frankly, which is something we don't talk a whole lot about. But it was a pretty decent report. And of course, it's kind of notable to talk about what's happening with respect to the consumer, given the fact that there is a significant amount of pressure, the setting of the consumer at the pump, at the supermarket and other places as well. You know, ongoing pressures and stresses around affordability are real. And despite that, though, the overall numbers for March retail sales were pretty solid. You have to kind of come through a lot of noise because there's a lot of things that are including that number or some things aren't. Of course, the biggest component or the biggest change in overall prices had to do with what happens at gasoline prices. And that's another element of the overall retail sales number in the sense that gasoline prices, of course, were quite elevated. And that kind of caused the price numbers and also those sales numbers to lift. If you strip that out and look beneath the headline, you'll see essentially a pretty good report overall in the sense that sales across the board came in faster than expected. And there were things like furniture and general merchandise and even things like e-commerce sales were all pretty healthy. And maybe that's somewhat because of tax stimulus and other things of whatnot. But overall, I think it's fair to say that the consumer seems to be, for now anyway, in pretty decent shape.

Now, we can't overlook the fact that we have seen some significant changes in the past few weeks or so because of the situation in Iran and the Middle East. We're seeing companies starting to ration back certain items and certain services. Notably, the airlines that are probably feeling the pain most acutely are talking about rationing flights. And that's just going to cause prices to go higher. And that's going to probably cause consumers to pull back at some point maybe later this year. So I think it's still TBD. I think the war itself continues to kind of drag on a little bit. It's really not quite clear exactly how we might get some ultimate resolution here. But I think we're kind of working towards kind of some kind of stalemate maybe where there's probably some lessening of tensions, if you will, but really not a lot of clarity around overall resolution. And that's just going to probably create maybe some overlying kind of headline risk and some volatility in the short term as we get some closure perhaps later this summer. So we'll see. Hope it doesn't quite last that long. I think both sides, frankly, have reason to negotiate and try to reach some resolution, but it's unclear exactly how we might get to that in the near term.

The bigger issue, as I kind of teased earlier, though, I think has to do with what happens next in the labor market. And I think there were some interesting headlines this week from many companies that are really at the forefront of AI. particularly a few companies in the technology sector and software more specifically, companies that actually announced some pretty notable layoffs. And again, we have to talk about this in the context of the broader economy. These are certainly big numbers for the individuals involved and the companies involved, but we still have a labor market of some 160 million people. So when we're talking about a few thousand jobs, that's kind of thumb all in routing sense, but I think it matters nonetheless. And then directionally, Steve, I'm kind of curious to get your thoughts on this kind of overall believes within software. And think of those companies that were at the forefront of these layoffs are in the software space and they're kind of moving towards AI. So if you think about this, is this more of a profit kind of motivation story? Are these companies trying to protect their margins or is this really more of a fundamental shift towards AI and away from physical labor?

Stephen Hoedt [00:08:41] So, George, I think there's a couple of things going on here. So first, like when you look at Meta and Microsoft, those are the two names that we're talking about. The Meta has historically gone through a period where pretty much every year or every two years, they literally decimate the workforce, using the Roman term for culling the bottom 10%. And like I... I don't know that I would really draw too many more conclusions from the meta piece of this, other than they're proceeding with what they always do, which is try to push out underperformers. I mean, they're very vigorous in how they rank their people, and you know, maybe it's possible that AI is making it easier for them to do that than in the past, but you know, meta, I think, is one piece. Microsoft is a bit of a different one because It's very clear that when you look at all of these software companies and Microsoft is no, isn't immune to this, the impact of AI on software jobs is one of the areas that is ground zero for determining how this technology is going to be adopted at an industrial level across the economy. It's, and we're starting to see that. Now, how quickly that's going to happen elsewhere, I don't know. And you could argue that this is kind of just a minor step forward for a company like Microsoft, because they still have quite a large number of employees, right? But at the margin, they're all spending a lot, a lot of money on the infrastructure for this. and they need to see a return on it. And one of the ways that they're going to get a return is through cost cutting internally.

George Mateyo [00:10:43] We also saw, Steve, a pretty interesting bounce, if you want to call it that, or something maybe more pronounced in semiconductors. And so one company in particular is Intel that's getting a lot of press these days. Is that real? Is that the kind of a shift that kind of speaks broadly about the AI build-out, or is that more something that's company-specific to Intel?

Stephen Hoedt [00:11:02] It's kind of funny. I mean, I do think that Intel has been a bit backstopped by the US government. So there's a different dynamic at play there. And very clearly, when you look at the geopolitical situation, it does kind of bring home the idea that, you know, we're going to see these global supply chains become less globalized as we move forward. And Intel's a beneficiary from that. So there clearly is legs to that story. When you look at it from a markets perspective, leadership has been reasserted by tech and communication services over the last month. Like this rally off of the lows post-Hormuz crisis onset has been led largely by semiconductors, which is driven tech. We've had a bounce in software over the last two weeks, and it's been driven by communication services stocks. So those two things, I mean, that had been, they had not been market leadership from the beginning of the year through April. So we did, so we saw a rotation coming through this crisis period, And what I always tell people is when you go through a crisis period, whatever emerges as leadership on the other side is likely going to be leadership for the next leg of the market cycle. And I do have to say, I admit I've been a bit surprised by it because we had seen cyclicals take over leadership at the beginning of the year. And those have really come off the boil during this bounce in the market. So you've seen industrials financials led by banks, material stocks, not just energy. I mean, you'd expect energy to sell off when price of oil drops by 20 or $30, but the rest of these industrial stocks have come off and so has consumer discretionary. So like you've had a very pronounced rotation once again into the tech and the, for lack of a better way, of putting it the high beta part of the market. And I think again, it's caught people off guard. This market has found a way to catch people off guard pretty much for the last six months running. You know, every time you think you've got something that you can latch onto as an investment theme, the market rotates and you get caught out on the other side.

George Mateyo [00:13:31] So sticking with the AI theme for a second, Rajeev, I'd love to get your thoughts on this. There's been some interesting, I guess, for lack of a better term, research that has been published by a couple notable think tanks, one on the West Coast, one on the East Coast, won't name names, but I think it's interesting because they talk about AI. They talk about the fact that this really could materially increase productivity in a major way, but the games themselves would be pretty uneven. And they kind of have talked about maybe bifurcation for those companies and those organizations that actually adopt AI would actually probably see some real benefits. Those that don't will probably be left behind. And it's not just putting some software in, it's really trying to integrate this into workflows that can capture some bigger benefits. So my question to you, Rajeev, this has to do with the Fed Reserve and how they might think about productivity. Of course, we have a potentially new Fed chairman that's going to step in who's been talking a lot about this too. And I wonder, do you think that to some extent the Fed is focused on the disruptive nature of AI, or are they just going to focus on other things for the moment?

Rajeev Sharma [00:14:31] It's a great question, George. I do think that the Fed and many Fed members have been pretty vocal about how the impact of AI is going to resonate with their dual mandate being that of inflation and maximum employment. So I think there's a lot of sentiment in the Fed right now. A lot of Fed members feel that AI is not going to disrupt their dual mandate too much. They think that any type of inflationary pressures that we're starting to see and we're going to continue to see could almost be mitigated by advancements in AI. And I haven't heard a lot of Fed members really talk about the impact of these layoffs that we're hearing about and what impact that's gonna be on the employment numbers. It's almost as if Fed members right now are very focused on inflation and they're very focused on the war that's going on and the impact that it's going to have on inflationary figures and inflationary data points that come out. Because those data points are going to be elevated and they're going to be inflationary. And they're not going to be trending towards what the Fed wants to see, which is disinflation. So if we're moving further away from the 2% goal that the Fed has and You got to believe that that goalpost is not going to change right now because you do hear Fed members coming out and saying that advancements in AI should be able to actually help the inflationary picture. We don't know exactly how that's going to play out. So these unexpected uncertainties that are in the market right now, I think that continues to weigh on the Fed. But what it's all done, all this being said, what it's done is it's put a Fed on hold, at least in the near term, because the Fed's not going to cut rates if inflation's not going to come down, or at least start to show a disinflationary trend. There's no urgency by anybody to cut rates right now. If you hear the Fed members speak, none of them are really coming out there and saying that we should be cutting rates right now, except for one dissent that we had in the last FOMC meeting. We may see the same dissent in this upcoming meeting that we have next week. Nobody's anticipating a rate cut next week for the FOMC meeting. Rate cut expectations by the market have diminished. for 2026. As I said, we don't expect the Fed to do anything next week. Based on those market expectations, the Fed at best would have one rate cut this year, and even those odds are quite low. The FOMC meeting is going to most likely point towards economic data. And again, that data that we've been seeing leaves little room for a rate cut. The economy is fine, according to the Fed, but price increases have persisted, and even dovish Fed members are pointing towards having patience right now. So all of this has really taken its toll on the bond market as well. I mean, we saw back in March where the aggregate bond index was down very heavily. It was a very terrible month for the bond market. We snapped back to some of Steve's points. It's amazing how much resilience that we got back in April and how we snapped back in the bond market. We saw a lot of those tech-heavy companies not feel fearful about coming to market with new issues. They were being received very well by the investment community. And again, we saw yield start trend lower in the month of April. Now, last week, however, or this week, we did see that treasury yields have moved slightly higher. And you have a 10-year right now that's around 4.33%. We were getting close to 4.5% last month. 30-year is also around 4.92% right now. And you have a two-year that's around 3.7%. What that means is the front end is very impacted by monetary policy. and the shape of the curve is dictating that. So if you believe that the Fed's not gonna be cutting rates, there's really little reason for why front-end yield should go low. And because of that, we've had a flattening of the yield curve, which I've mentioned before is the pain trade in the bond market right now. Many, many investors are pointing towards a steepening trade, or they've had their money in a steepening trade, and the curve remains flat. This week, again, we've gotten a flatter yield curve. Now, the curve itself, if you look at the differential between a two-year treasury yield and a 10-year treasury yield, you're around 50 basis points. And we've been around this 50 basis points for quite some time now, a couple of weeks. We did get down to 48 basis points this week, but that was short-lived. The curve really wants to steepen, but the only way that's going to happen is if we get some kind of resolution on this war, we get some kind of Fed members that are pointing towards at least some rate cut this year. If we don't get that, we're going to see the front end continue to be elevated. And you're going to see the impact in other areas as well. I mean, we talk about money market funds. You don't see a lot of rotation out of those funds right now because why would you? You've got pretty decent yields in money markets right now, so that's not happening. So we need to see some kind of certainty in the market. We just haven't had it. And what we have had is the fact that we are going to have a new Fed chair at some point. We did have Kevin Warsh come to the Senate Banking Committee this week. He had a testimony. I thought that was very telling for the market. I think many people expected him to come out and really talk about rate cuts and we need to be cutting rates. And he kind of stayed away from that a little bit. He also pointed more towards how important central bank independence is. I think that was well received by the market. But there were some highlights in there that even though he talked about Fed independence, he talked about not being a sock puppet for President Trump. He did say that he's going to make the decisions that he puts forward are going to be in line with what the Fed is supposed to do, and that is supposed to be their dual mandate. But what really I think concerned the market a little bit was kind of his ideas about we should not be having a lot of forward guidance. And the market has become very accustomed to dot plots and forward guidance and where the Fed thinks rate cuts are going to go, where monetary policy is going to go. If we take that away from the market, you could expect more volatility around those timeframes when we have an FOMC meeting. So I think that's going to be very important to watch. So I think that did move the market a little bit.

Stephen Hoedt [00:20:26] Hey, Rajeev, while we've been on the call, ABC News is reporting that the Fed is, or the DC district attorney is going to drop the charges on Powell probably as early as today.

Rajeev Sharma [00:20:43] Oh, that's, so that's, that's very interesting news. And I think to that point, you know, that again, you know, you're going to start seeing whether Fed Chair Powell stays on as a, as a Fed governor. I think In the past, we've seen a lot of Fed chairs pretty much right off into the sunset when their term's over. This time you did see Fed Chair Powell in the last meeting say that he would stay on. Many people thought as long as this DOJ subpoena's investigation was continuing, he would stay on. There's also that talk about Tillis, Senator Tillis saying that he would not allow for anybody else to be nominated as Fed chair as long as this was outstanding. So I think this also opens the road up for Kevin Walsh going forward. Very good news right on the fly. Thank you for that, Steve.

Brian Pietrangelo [00:21:26] Definitely. So for our listeners, all that commentary was around the prior comment that, again, for a reminder, everybody, Jay Powell's term is up May 15th. Kevin Worse has been nominated and has to go through two rounds. One is with the Senate Banking Committee and one is with the full Senate to get confirmed by that time. If he doesn't get confirmed by that time, Powell stays on and that won't be pleasant for President Trump. And Tom Tillis, senator from North Carolina, had threatened to block Warsh's vote and could because it was a 13 to 11 vote. And if it's 12 to 12 at the time, he might lose. Why did he say it? Rajeev, you said it. If the Trump organization or the DOJ doesn't drop the suit against the Fed for Jay Powell for building too much on the new building and the cost overruns, he would block Warsh's vote. With Jeanine Pirro saying she's going to drop that now and go over to the Inspector General rather than the DOJ, it might provide Tillis the opportunity to give the green light. Very interesting. Any other thoughts, Rajeev?

Rajeev Sharma [00:22:23] No, I do think it's very interesting. And I do think that, again, the market's looking for some kind of certainty, and uncertainty is not good for the market. So if this pushes in that direction, I think it's good for the bond market, good for risk assets.

Brian Pietrangelo [00:22:35] 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 within next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:23:10] 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.

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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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