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October 2, 2026

Brian Pietrangelo [00:00:01]

George Mateyo [00:04:32]

So there's this concept, Brian, called the October surprise that I think first became popular sometime in the maybe 1980s or so, and it was around the time of the Iranian hostage crisis back then. And it kind of refers to the time of year, in an election year anyway, when there's something unforeseen that rises up and spooks markets a little bit, gets things jittery, gets the public focused on some type of geopolitical event normally. And it wouldn't be surprising to me if we see another October surprise, although maybe to some extent we can argue we've already had that. in the sense that we've had this prolonged contract, conflict rather, with Iran now. And I think it's probably likely that things have kind of settled down at the surface anyway, but beneath the surface, there seems to be a bit of churn. There's some discussion around more military assets being deployed from the US into the region. And that would suggest that maybe there's some buildup, anticipated buildup that might be coming later this month or next month after the midterms. It's hard to say, and it's hard to really form a cogent investment thesis around that. But I think it is probably fair to say that the volatility we've seen in the month of September could likely persist a bit more further into October because frankly, both sides are looking for some leverage. They're trying to figure out actually how to maybe inflict some kind of tension that the other side reacts in some kind of way. And there is probably also a surprise, maybe a positive surprise, that there could be some type of deal, I think it's unlikely. because I think there has been some deal discussions in the past few days or so, the past few weeks, and that seems to be a little bit off the table. So I kind of think we'll be in this push-pull environment for a while longer that suggests that maybe there's some talks and then maybe things escalated further after the midterms. I'm not going to try and go on a limb and say it's going to be an extreme event one way or the other, but I think we just have to condition ourselves that volatility, again, is probably going to be a bit persistent because of ongoing geopolitical tensions. And that kind of has implications for inflation, of course, and has implications for energy prices and just overall market volatility. The other thing I think it probably deserves mention in terms of October surprises just has to do, again, is what's happening in the bond market of late. I think we're seeing a little bit of relief today, thankfully, because the overall influence situation was a tad weaker than expected. I don't think it was by any means catastrophic, but certainly a little bit softer that maybe takes some of the boil off with respect to the notion that up until this point, the economic numbers have been pretty strong of late, suggesting the economy is doing just fine. Thank you very much. And that's one reason why bond yields have been creeping up. But Rajeev, I'm sure this is also in your world in the sense of what the bond market is pricing with respect to more actions from the Fed. We're still grappling, I think, with a relatively new Fed share, and nobody's really quite clear exactly what he's thinking, which probably provides a bit of angst as well. So what are you thinking, Rajiv, with respect to bond markets and what the Fed might be doing later this month when they meet at the end of October, just a few days before the midterms?

Rajeev Sharma [00:07:39]

Well, George, it's been a pretty rough week for the bond markets and that's calling it lightly. It was pretty turbulent. We had a sharp sell-off through Thursday of this week. followed by some recovery this morning after the weak jobs report. But really, if you look at the 10-year Treasury yield, we spiked to 5.3% on Thursday. That's the highest level that we've seen since 2002. We're getting a little bit of modest pullback this morning, which is a relief, as you said. But that's really because Friday, September payroll numbers came below estimates. This took some of the steam out of those Fed rate hike expectations. If we started the week off, those rate hike expectations for the October FOMC meeting were around 64%. So we had really climbed beyond a flip of a coin that we were going to have another rate hike in October. Those expectations after today's report have fallen down to about 17%. You're looking at a 17% probability right now with the markets thinking about for an October hike, as I mentioned, down from 64% earlier in the week. And I think that's also reflected in the two-year Treasury note yield, which fell by 10 basis points this morning right after the jobs report. We're around 4.7% there. Now, That's not the only component of the bond market. We should also talk about credit markets. And we've been talking about investment grade spreads and high yield spreads being extremely well behaved for a very long time. Throughout the entire year, they've been at their multi-decade tights. But this week, we did see investment grade spreads widen by about five basis points. And that's the biggest widening we've seen in a week since March. We reached the widest level in six months. High yield is on track for the fifth consecutive weekly loss, which again, high yield has been doing was one of the shining points for the fixed income markets with positive returns this year to date. But now that we had fifth consecutive weekly losses there, I think the component within high yield that's really suffering the most are CCC rated bonds. They've had their worst weekly loss since April 2025. Now, yields are still hitting their four-year high, and I think that's what's really important. You can't look at the bond market without looking at these yields. And you don't have to take a lot of credit risk to pick up yield in this market. Neither do you have to take a lot of duration risk either. So it's an attractive entry point for many investors right now, looking at yields where they are right now across the curve. But you should also think about other components of the fixed income market, like mortgages. With the move that we saw in treasury yields, Mortgage rates are up as well, and they've surged to their highest level in nearly three years. And again, that's a direct result of the broad market selloff that we've seen in the bond market. Right now, a 30-year fixed is around 7.28%. That's 25 basis points higher on the week, and that's the largest weekly jump that we've seen since October 2022. So what's really driving these moves? I mean, mortgage rates, they're tracking the tenure pretty closely. That's what they do. So the surge in yields that we saw in the tenure directly impacts mortgage rates. Structural factors also are there, including inflation concerns, certain government debt issuance, and this heavy corporate borrowing that we're seeing for AI infrastructure build out. So these factors are keeping pressure on yields to go higher. And I think that's what's going to be an impacted, not just mortgage rates. I mean, mortgage rates, sixth consecutive week of rising mortgage rates. This is all a function of what's happening. in the yield market, the treasury market. And those rates being higher really is a function of a lot of supply that's coming to market, the corporate debt that's coming to market. There is really no relief right now for rates to go. There's no signal for rates to go lower at this point unless we start getting some really solid data reports that push rates lower and take some of the pressure off the Fed to do something. Still right now, you're looking at one rate hike by the end of the year. Totally different playbook than we were at the start of the year.

George Mateyo [00:11:31]

So Rajeev, you mentioned the CCCs, which we often talk much about, but just to make sure our listeners know, that's pretty much the riskiest of the risky bonds, right? Those are companies that are really highly levered and they almost have to take whatever rates that are given to them in the sense that they're so levered up to the gills most that they have but no choice to take those high yields. and pay those high yields if they actually want to borrow and use the capital markets to fund operations, if you will. So we looked at, for example, I think we showed a chart this week that looked at the spread of those CCC bonds. And they've just, as you mentioned, they've blown out. So there is a lot of some pain being felt certainly in elements of the credit market, albeit at the very risky end of the credit market. But Steve, my question for you has to do with the fact that typically we start to see equity volatility rise a long time.

Steve Hoedt [00:12:21]

Those CCC spreads we just mentioned also widening that's not happening right now at least at least the headline numbers according according to the VIX numbers that I've seen but how do you square that circle in the sense that we've seen some stress in the credit markets but not any stress at all inside the broader Equity markets party on Wayne party on Garth I mean I remember the old Saturday Night Live gigs right and I mean look the equity markets are partying on and So is this Wayne's world now? It feels that way. It feels like it's the Wayne's world market, George, because like when we look at the, when we, when you look at what's been going on in the bond market, like whether you're looking at triple C's or whether you're looking at double B versus triple B spreads, high yield, all this kind of stuff, the credit market is telling you that something's going on and When you look at the CDS for, and that's credit default swaps, when you look at CDSs for the hyperscalers, I mean, what jumped out to me was the Meta slash Facebook, whatever you want to call it. You know, they announced this Muse product a couple of weeks ago and it's had massive amounts of downloads. It's their consumer facing AI product. And yet you look at their CDS and their CDS remains at wider levels than it's been in years ever, basically. And I think the market is really taking a look on the fixed income side at this build out from a capital expenditure standpoint and wondering, how are they ever going to pay for this if they can't monetize it? And the equities market, whether it's the party on analogy or the Wile E. Coyote running off the cliff kind of analogy that you've seen people talk about as well, the equity market right now doesn't care. At some point, I think it probably will care, but we haven't crossed that bridge yet. And if you look at the primary enablers of the AI theme, The poster child segment of the market is semiconductors and semiconductors just moved to a higher high than they saw in August. Now they're still below the highs that they saw in June, but it shouldn't be lost on anyone that they've recovered materially from the lows that they saw in early July. I think that the market right now continues to bid the AI thematic up in the face of what's been going on in the bond market. And I do think that when you look out over an intermediate term time horizon, which is a six to 12 month time horizon in our parlance, hard to see how the market is not going to follow the bond market if the bond market continues to have concerns about where things are from a credit perspective. I've been in the markets since the early 90s. In every single cycle since the early 90s, credit has been the flag. You have to watch credit in order to call a turn in the equity markets. And when credit starts to behave poorly, you better start paying attention. Irrespective of what's going on in the equity markets at that time, credit is the true tell, not what's going on in stocks. So to use your Wayne world's metaphors, do you at some point do credit markets tell the equity markets that they're not worthy?

George Mateyo [00:16:15]

I think that is correct. Well, we have to be cognizant of that. I think it's probably fair to say that timing that is going to be difficult and timing is not a strategy that we really want to employ. So that being said, I think the things we can do are probably shift up in quality. That's something I know that Rajiv has employed in his strategies. I know you're working on that insider equity book as well. And I think that's also reflective of the fact that more recently, we started to pull back some of our exposure towards small-cap companies and mid-cap stocks that are a bit more levered and tied to the economic cycle. So all those things suggest that, again, it's not necessarily risk-off entirely. It doesn't mean that the party's over, to use your metaphor, Steve, but it's going to become more discerning perhaps next year. There's also some other headwinds we have to contend with in the sense that some of the stimulus that was pushed to the economy this year will start to recede. and comparables become more challenging as well. So I think it's going to really be important for us to focus on quality in the months and quarters ahead and also really remain ultra diversified to withstand whatever comes our way next.

Brian Pietrangelo [00:17:17]

So Steve, one last question. I like the way that George just summarized that, but the one thing I'd like you to explain to our listeners is that credit markets might be the flag, but earnings seem to be the power in the stock market. Reconcile that for us.

Steve Hoedt [00:17:30]

So I think that the Earnings numbers for the S&P 500, which they clearly continue to go up into the right, the thing that I've been focusing a lot on lately is the multiple contraction that we've been seeing in the market from a PE perspective. And it largely has to do with something that George has flagged on these calls and that we've talked about at length, and that is that the quality of earnings for the S&P 500 over the last year has deteriorated. And by that, I mean, it really has been a large amount of other income or one-time items due to some of these public offerings from the AI companies or marking up what the valuation is of these stakes that they own and then seeing those numbers translate through the earnings line. Now, if you look at the raw numbers, S&P 500 earnings are up over 30% plus year over year. You back out the other items out of that, they're still up in the low 20s, which is fantastic earnings growth. But it's clearly not the same numbers that we're seeing. So it calls into question what's the If the stock market's not a bubble, maybe the earnings numbers are the bubble, right? And I think that the market has kind of sussed that out and is not willing to pay up for those numbers at this point in time because they view them as ephemeral. And I think that we tend to agree with that, but this kind of stuff can go on a lot longer than what people think.

Brian Pietrangelo [00:19:16]

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 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 [00:19:50]

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

Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.

This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy.

KeyBank, nor its subsidiaries or affiliates, represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose or any investor and it should not be used as a basis for investment or tax planning decisions. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal or financial advice.

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

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

Non-Deposit products are:

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

September 25, 2026

Brian Pietrangelo [00:00:00]

Steve Hoedt [00:02:12]

Brian, I think all eyes from equity investors have been on the action in the bond market this week because if you look at where stocks are, really we haven't gone anywhere since last Friday, just up a handful of points. Back and forth trading all week. But if you look at a 10-year yield, I'm sure Rajeev will talk a little bit later, we were as low as 493 on Tuesday. And we sit here on Friday morning when we record this and we're at 521. So it's been a significant move higher in the 10 year. And 5% has basically been, for lack of a better way of putting it, imagine a line for the equities market in terms of are things okay or not over the last 30 plus years. Once you get above 5%, stock market investors start to pay attention to what's going on. And I think that's part of the headwind why we've seen stocks have not really make much headway upward this week. It's an open question where this is going to go from here. I think that we've seen bond yields march higher on a global basis for the last six plus months. It's been synchronized across markets. And again, equities have moved higher. So the stock market hasn't cared, but that doesn't mean that it won't start to care at some point here. And as to my point earlier, once you get above 5%, the equities market starts to care a little bit. So we'll see how this goes over the coming weeks and months, especially if we are in a tightening cycle where we start to get more hikes out of the Fed, because it does seem like at least since while they were easing bond markets, bond yields were going higher at the long end of the curve. And now that they've been, they started hiking, yields are going higher too. So it just feels like yields want to go higher here. And like I said, we're at a level where stocks are going to start to have to feel it. There's been a lot of rotation underneath the hood of the market because of this. Banks are not doing well as you would expect. interestingly, it feels like the market's been held up by tech and AI again over the last couple of weeks. So while we've got this rotation out of things that may be interest rate sensitive as rates have worked our way higher, we've seen things like the AI levered names doing well again. Obviously you're out with the Muse news from Meta this week, which has driven a bit of a rotation into those names. And we can talk about that if people want to. But I think when you look at the earnings numbers for the 500, over $400 per share in terms of EPS at this point, we've seen the multiple continue to de-rate. Again, I think that part of that de-rating is driven by what's going on in the bond market, as well as people not being willing to pay up for some one-time earnings that they think are in that EPS number. But I think as we head into the fourth quarter, the case for the market to just continue to rip higher here, it really does rest on the bond market not having a significant move higher in rates from here for sure, if not seeing rates turn around and go the other direction. I mean, I know it just feels like everything is about rates in my talk this week, and I'm sure that warms Radeep's heart on the bond side, but it really does feel like that's the biggest. And the other thing I would point out too is like diesel prices are at new all-time highs as we sit this week. Diesel is literally in everything. Jeff Curry, the former strategist at Goldman, he's been pretty prominent in media circles. He's got a saying that everything that you see in the commodities markets and that you touch is diesel and dirt. So diesel is an input cost in literally everything that you see. And I think that if you think that the inflation numbers are going to get better with diesel prices at 650 plus, that I think is people are going to have another thing coming when they see that.

Brian Pietrangelo [00:06:44]

So George, let's switch to you with some thoughts on what might have happened in some pretty big meetings in Washington, DC this week.

George Mateyo [00:06:50]

Yeah, you're right, Brian. There were a couple of big meetings there and a few things in New York as well. You know, I think overall, though, in terms of what happened in DC first and foremost. I think there was probably a lot of pageantry on display, not a lot of policy, however. That's probably okay. At least I think the two sides are talking and I give the administration credit for trying to establish and maintain some level of dialogue. That's always good when the two big superpowers of the world are talking rather than not. I think kind of coming into this, there was maybe the expectation that There would be focus on the four Ts. There would be focus on trade, flash tariffs. There would be focus on tech and AI. There'd be some focus, of course, on Taiwan and also certainly Tehran in terms of what's happening in Iran. Because I think it is important to recognize that China, for good or for bad, has, it seems like behind the scenes, been helping the Iranians stay armed for good or for bad, but probably mostly for bad. Nonetheless, I think it's fair to say that we didn't see any major breakthroughs on many of those fronts. We did get a few things as it relates to a couple of bees. Those would be soybeans, beans and beef and bears, panda bears more specifically. But again, all alliteration aside, I think it is fair to say that again, the two sides are talking. And so I think that's always constructive when it happens. There's some promise. I think both readouts that I read suggest that both parties are willing to continue the conversation And that emphasis on the word continue is always good in the sense that, again, it maintains some level of conversation. I think, again, the other big news, of course, was the conversations that took place in New York at the UN meeting from a number of different stakeholders, which I won't go into a lot of detail. But as it relates to just geopolitical complex, that still seems to be an underlying theme as well. And as Steve pointed out, that's kind of providing some level of support, unfortunately, for the upward prices on diesel and other things in the energy complex. So again, we saw some minor escalations kind of in words and also on the battlefield, unfortunately, and there's probably some growing concerns around what happens post midterms if things really escalate thereafter. Of course, nobody really knows, but I think that is a risk that we have to be mindful of and has to be front and center as it relates to, again, what happens with diesel prices and energy prices that, again, are also kind of rippling through the rates markets, which Steve was right to point out as well. So I think it does kind of center on that dynamic. It centers, I think the market's going to be kind of pinned to what happens in rates as well. We have talked a lot about this and there is a point now that this does kind of cause a bit of concern and maybe if nothing else, what I would kind of urge our listeners and viewers to think about is this, think about their overexposure towards risk assets in general. And yeah, this year has been a pretty good year for risk assets overall, such as stocks and some more speculative stocks have done super well up until recently anyway. And I think it's probably important to recognize that if you haven't really touched your portfolio in a few years, it may make sense to look at the overall exposure towards risk assets and perhaps rebalance. There are reasons probably that bonds could continue to underperform as they've done this year. But overall, you've got probably a better cushion out than you have in quite some time as well. So bonds are no longer boring, as we say. And again, I think some of the silver lining of all this is to say that despite the fact that there's been a lot of headwinds that have pushed bond rates up, I think a big driver we can't dismiss is the fact that the overall growth outlook to the economy has been really quite strong. And that was evidenced by some survey data this week, which I personally wouldn't put too much credence in. But the overall employment situation is still pretty strong. We talked about the consumer last week has been pretty healthy. And overall, I think the growth dynamics for the economy are right now anyway, holding in rather well. But that said, I think, Rajeev, one thing that we do need to get your thoughts on as relates to the rate markets has to do with what's happened or what might happen next month in Washington, again, which of course is another FOC meeting. The Fed is poised to meet again at the end of the month. So we still have a long ways between now and then. But I think it'll be interesting to see if the Fed actually is likely to tighten rates just a few days before the midterms in late October. Based on my watch, it seems like the overall probability that happened has increased. But what say you with respect to rates in the next few months or so?

Rajeev Sharma [00:11:08]

Well, thank you, George. And to Steve's point also, I mean, rates have continued to move higher. It's been a really tough week as far as Treasury yields go and a significant selloff in the Treasury curve this week. We did see yields move to their multi-decade highs, a little bit of recovery this morning, but not enough. The 10-year yield reached as high as 5.20%. That's a level that we haven't seen for almost 20 years. And now there's a little bit of pullback, maybe about four basis points this morning on my screens, but oil prices have eased and that's exactly what's impacting these treasury yields. I mean, if you look at the year of the week over week, the two year is up almost 15 basis points. And that's to your point, George, as far as What is the Fed going to do come the next meeting, FOMC meeting? It's very close to midterms. Some may say that the Fed won't do anything right before the midterms, but I really think the Fed is going to be focused on inflation reports. You have a 30 year that's 5.5%, which again, to Steve's point, it does rival some of the thoughts about rotating out of stocks into bonds because you're not seeing these kind of yields for, as I said, over 20 years. And what's happening right now is really inflation and the Fed hawkishness. There's many Fed officials that have come out. Fed speak has come out, including Governor Barr and Philadelphia Fed President Paulson. They signaled further rate hikes may be needed to return inflation to the Fed's target of 2%. You have other talking heads talking about a 10 year forecast hovering around 5%. So there really is no relief in sight as far as rates go. And then when you get the psychological level of a 5% on the tenure, you generally see buyers step in. At 5.2%, we did not see buyers step in yet. I think if you have treasury options coming up, you're going to see a lot of price pressure on rates. Oil prices are going to be, as I said, a significant factor. If you're over $100 a barrel, that's a key inflation driver. It will amplify the sell off in rates. Then you have fiscal concerns. I mean, we have $40 trillion of US debt. No real plan to bring that down in any way. So budget deficits are contributing to the view that the bond sell off is real and will continue. Then you have curve steepening. The long end really bore the brunt of the move that we saw this week. 30 year yields, as I said, hit the highest level since 2004. So you have a 210s curve and a 530s spread that have steepened sharply. Then if you want to think about volatility, then you look at the move index, which for our listeners is something that bond investors really want to take a close look at, just like the VIX index for equities. The move index was surged almost 30% this week. That's the largest weekly jump since April 2025. And we know that was when tariffs were announced. So treasury buybacks are happening, treasury auctions are happening. All of this is putting pressure on rates to remain at least elevated. And then you have corporate bond spreads that have been pretty resilient, but we do have a lot of issuances coming into the market. It hasn't put a lot of pressure on bond spreads, but it's very interesting to see investment grade credit reaching a three-year high of almost 6%. So it's hard to deny the fact that there is yield in fixed income. And I think a lot of investors are going to be looking at this and you're going to see a lot more inflows coming into invest grade and other risk products within fixed income.

Steve Hoedt [00:14:56]

Hey, Rajeev, my question and I think the biggest concern right now is I get the Fed's focus on inflation, but at the same time, what concerns me is that the persistence of inflation is difficult for them to try to remedy with higher rates when it's been put in place largely here recently, this impulse by structural supply chain issues in the petrochemical market. Like they can't fix the global refining situation that could ease diesel prices. And the more that they hike, they can hike all they want. But if diesel prices remain above $6 per gallon, inflation's not coming down whether they hike or not. So like I worry that we're getting to a place where I don't know that I throw around the word policy error, but like it's a it's a it's a real question whether they're they I mean, I don't think they have the tools to do what they're trying to do with this. It's like a blunt instrument and they're beating on the market saying, hey, we don't want this inflation thing. But the problem is that what they're doing isn't going to cause inflation to go down unless they end up, you know, putting a crater in the economy and causing demand to crash.

Rajeev Sharma [00:16:21]

I mean, it's a very good point, Steve, and I think a lot of, you know, those thoughts were the last FOMC being that is 25 basis points even going to do anything. Do we do 50 basis points? Will that do anything? But you have core broad based pressures that are happening right now you have, as you mentioned, there's. a deep feeling that inflation cannot come down just with a 25 basis point rate hike. I think the Fed has to use other tools right now to think about how to bring this down. And I really do think that you have also seen the AI driven demand. I mean, you've had some Fed speak come out and said artificial intelligence may be a demand side contributed to price pressures. So there's a lot of other factors besides just oil being high. And this is a global situation. I think we've seen other central banks around the globe move in to try to raise rates to try to combat global inflation pressures. But the real driver here is not going to be 25 basis points that's going to make this happening. I think you're going to need passive tightening from the bond market to try to get fiscal pressures, but it is not going to happen with 25 basis points.

Brian Pietrangelo [00:17:38]

Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And before we close today's podcast, a final reminder that we've been cascading for the past few weeks is that we have our upcoming national client call next week on Tuesday, September 29th at 3 P.m., where we're going to discuss our outlook for the midterm election updates. George and Rajeev will be on the call together with our special guest, Libby Cantrell from PIMCO, to provide insights on those upcoming midterm elections and what they might mean for the markets and the economy. So again, if you'd like to join and you don't yet have an invitation, please reach out to your key bank relationship manager or contact to get that invitation again next week, Tuesday, September 29th at 3 P.m. Eastern. 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 within next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:18:57]

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

September 18, 2026

Brian Pietrangelo [00:00:00]

Rajeev Sharma [00:03:47]

Yeah, the SOMC met this week and all odds were that the Fed was going to raise rates. There were to hike rates, 90% probably that they were going to do that. And they did exactly that. So the target range went up 25 basis points to 3.75 to 4%. And what happened in this meeting, it was a very hawkish meeting in the sense that the press conference said that they're not done yet. They're focused on inflation. Many investors thought that maybe they should have raised 50 basis points, but they didn't do that. They did 25 basis points. I think that was in line with the market expected. They did release their summer of economic projections. The dot plots actually pointed towards a more aggressive Fed that wants to raise rates. So you do have dot plots pointing to another rate hike this year. The real focus from the press conference and from the statement was that inflation needs to get to the Fed's 2% targeted goal. And until they get there, they are not going to be happy. So I think the Fed has done what they needed to do. That's what the market expected. But the press conference itself really was a little more hawkish and you saw yields really move higher in the front end. We had a bear flattening move where the front end moved higher than the long end of the Treasury curve. It had a lot to do with the fact that the summary of economic projections pointed towards inflation expectations being revised higher. And even though unemployment rates were slightly lower in their economic projections, I really think that the focus from the Fed right now is inflation. And the market's going to have to deal with every single inflation report that comes out to see what the Fed's going to do next. So if you look at the expectations from the market, they're expecting by the end of December to have another rate hike. But I really feel that every single data point is going to be important and the Fed's going to err on the side of data. So what happened with the market as soon as this happened, treasury yields went up, the dollar also rose, equity markets rolled over and credit spreads tightened actually after the FOMC release. So, the thought here is that we are on a rate hiking cycle. I don't feel that the Fed has generally done one rate move and then stop. They don't like to pause. They like to get on a rate hiking cycle or a rate cutting cycle. In this case, we're in a rate hiking cycle and I don't think the Fed is going to stop. At least that's typically what happens with the Fed. They don't like to pause. That being said, we did really get a lot of information from Fed Chair Warsh. He doesn't like forward guidance and he really said you have to look at the data and focus on data. But he did say this was the right move. And I think that's very important credibility wise for the Fed. The market viewed the move as a credible move by the Fed. If they didn't do anything, I think that would have put into question Fed credibility. Now, Fed Chair Walsh did not give a dot plot for himself, but there was a dot plot that was released. And that does show that we're going to be higher for longer. And I think the market is prepared for that. And the reason I think that is because the next day we had a complete reversal in the Treasury market. If the Treasury market felt that the Fed is behind the curve, we would have seen a continued sell off. We didn't see that. We saw Treasuries rally the next day. It was almost like we kind of recapped something that we had right after the FOMC meeting. So the market feels that the Fed is credible. They're doing what they need to do to bring inflation down. Every data point will be important. Kevin Walsh has shown his credibility. There were some reports out there that maybe because he didn't show a dot plot, he kind of allowed himself for some cover. But I don't really feel like that's exactly what his intention was. He has never believed in the dot plot. He's always believed in less forward guidance. So this is going to be a very interesting Fed regime right now. And I think that when you see other central banks around the globe, inflation is the number one priority. It's a global theme. And you're seeing other banks start to do the same thing. They've raised rates also. So having the Fed do this, it was not a surprise that they did it. But the forward guidance, the projections, economic projections really point more hawkishly in his press conference, a little more hawkish.

Brian Pietrangelo [00:08:32]

Rajeev, I thought it was good that it was a 12 to zero vote, right? It was unanimous. And that tells us something. What do you think?

Rajeev Sharma [00:08:38]

It was unanimous. And I think everybody's looking for dissenters. We had dissenters in the July FOMC meeting. This time around, it was all unanimous. I think what's going to be really important is the Fed minutes that come out in a few weeks. We'll see really if anybody is really pushing for maybe 50 basis points. But I think that it was very important to see that was a unanimous vote.

Brian Pietrangelo [00:08:59]

George, any thoughts from you?

George Mateyo [00:09:01]

Well, it was pretty convincing, as you pointed out, Brian, a 12-0 vote on expectations. There might have been some broad round of chairman along with that. So it's hard to read too much into that. But I think the bigger issues that Rajeev raised are spot on in the sense that this is probably a pretty big shift in terms of all thinking about what the Fed is likely to do going forward. I thought the comment that they said they were, quote, removing a dose of accommodation suggests, as you pointed out, Rajeev, that there's probably more cuts, I'm sorry, more hikes rather to come and more action from the Fed that suggests that maybe we are on the cusp of a tightening cycle as opposed to just a one shot cross the bow kind of move. And as you also know, the Fed really likes to do that. Not that they don't mind standing still, but they'd like to be either in a state of tightening or easing. And now it seems like we're clearly in a situation of tightening. The good news though, I guess, is that the economy seems to be able to take it in stride. We've already seen rates as we know. As we've talked about on these conversations and other places, Rates have been rising for quite some time in the past few weeks or so. And the stock markets, the risk assets in general have been sideways up. So I think they've taken it in stride to some extent. But going forward, I think there is a question as to what this means for portfolios. It probably suggests that volatility is going to remain when you have more uncertainty from the Fed. You still have a lot of uncertainty with respect to the Middle East, of course, and the ongoing conflicts in other places in the world. So I do think that's probably going to be an element as well. And I think the other thing I'd point out is that up until this point, as I mentioned, the economy has actually been able to withstand some of these pressures fairly well. The resiliency is just really remarkable. A lot of that, of course, is driven by AI and some other things as well. But overall, it does seem to me that maybe the overall tenor of the backdrop with respect to the Fed is changing. And we have to be prepared for more uncertainty and perhaps more volatility in the next few months ahead.

Brian Pietrangelo [00:11:00]

Speaking of that uncertainty in AI, George, we have some comments from various parts of on and off, risk, no risk. What's your thoughts from the CEO commentary that we've heard this week?

George Mateyo [00:11:09]

Well, it's not surprising and it is, I guess what is surprising in the sense that people are kind of lining up in different camps. And it is interesting right now when you have these moments, the bedfellows, as they say, become pretty interesting in the sense that who's kind of pairing up with who. I was struck by the fact, for example, that Bernie Sanders and Steve Bannon were on the same stage at the same time talking about the same issue. They seem to be aligned in the sense that they'd like to see some of the curtailment you talked about with respect to data centers take place. They'd like to see maybe a pause, if you will, or some type of moratorium in other places as well. That's quite interesting to me to see how two people historically that have been on pretty opposite sides of the spectrum, politically anyway, align themselves around this one issue. As we talked about, I kind of thought, frankly, that this would be an issue for the '28 elections, not so much the '26 elections, but here we are. And I suspect that, as we talked about last week, maybe it fades a little bit after the elections go away. I think the overall doomsday conversation that really dominated the airwaves in the last week or two, frankly, are a bit overblown. Truthfully, nobody really knows, but we've seen periods of time in the past where you have these major disruptions because of technology. And sometimes people get very concerned about things. And yes, sometimes the disruption that takes place is very profound, it's real. We saw that 120 years ago or maybe 200 years ago when you think about the Industrial Revolution back in the early 1800s, that really accomplished a lot of good, but it also came a lot of disruption in the labor market at that time. And similarly, we've seen other periods of time where you've seen some major disruptions from technology that creates a lot of concern. But ultimately, we've proven to be very resilient as a society and as an economy, and we've been able to kind of power through that and really enjoy the overall benefits of productivity. I think there probably still is some risk though, Steve, with respect to capital spending. Capital spending we've talked about as relates to AI has been really the dominant theme for the economy for much the last year or so. It's been an ongoing theme inside the stock market where the market, as you pointed out, probably divided between AI stocks and non-AI stocks. So I would guess I toss it over you, Steve, to get your thoughts. If we see a big slowdown in the AI buildout, does that portend something worrisome for the overall equity market in your view?

Steve Hoedt [00:13:29]

Well, George, it's been the key driver of the earnings explosion that we've had this year, period the end. And if that was to come off the boil in some significant way, I don't think there's any way that the equity market wouldn't be negatively impacted by it. So it's something that we're going to have to continue to watch. I don't particularly think that either the red team or the blue team wants to throw a monkey wrench into the economy per se. So I know that there's lots of talk among the political chattering classes about AI and data centers, but at the end of the day, I'm not really sure that there's going to be much that's going to happen simply because to take material action there would be a pretty significant negative drag on the economy right now, because it really doesn't seem, if you look at the rest of the economy, it seems to be that the economy is okay, but if you look this morning, you had factory output down in terms of industrial production. And that was an unexpected decline, right? So, I think you look at other things and you don't necessarily get a super sanguine picture of the economy X data centers. I mean, I think it's okay, but it's clearly not just completely humming along right now. And I think when you look at a couple of other points this week that And I think it's going to be very hard to see the Fed not continue this hiking cycle when you've got diesel prices at all time highs. And people don't understand or don't think about diesel because most people don't put diesel in their cars, right? They put gasoline. But literally everything that you see around you got delivered by a truck that has diesel going into it. And the fact that diesel prices are at all-time highs, it's going to ripple through the pricing system for the economy over the next three to six months. And I really don't see anything that's going to reverse that. So we're going to be dealing with these inflationary pressures. And honestly, the difficult thing for policymakers is the Fed can do all they want on that, but they're not going to be able to make diesel more available. What concerns me about the Fed's action is the Fed will continue to tighten if they follow the historical pattern until they break something. And they're going to break something because they can't fix the inflationary problem that they're trying to solve. So we'll see. I look at the bond market this morning. I see the 10-year yield back to 5% after the modest 7% or 8 basis point rally yesterday. I think we're looking at higher yields over the next three months heading into year-end. The 10-year is going to be above 5.

Brian Pietrangelo [00:16:30]

Steve, what does that mean for stocks and specifically maybe some of the sectors and how they differ?

Steve Hoedt [00:16:35]

Yeah, it's been interesting to watch this week because we've seen the financial sector start to take on some water. And I think that that's a valid move by the market to look at it. And when you look at some of the other areas that typically have exposure to higher rates in terms of longer duration. It's tech and it's biotech within healthcare that typically underperform in that environment. The difficult thing within tech right now is to figure out if it's going to be the same way that it usually is this time or because of the AI stuff, if tech is going to hold up better. But at the end of the day, we're continuing to watch for the impacts because there is rotation to be done or the market will rotate. And we're already seeing that with financials starting to take on some water here after being reasonably okay for the first seven or eight months of the year. The backup in rates is starting to bite.

Brian Pietrangelo [00:17:39]

And Steve, any thoughts real quick on the tech rebound in spite of that yesterday?

Steve Hoedt [00:17:44]

Again, it goes to what people think is kind of a durable theme. I would say that yesterday was more of a thematic day than anything else because You saw tech do well, you saw energy do well. So you saw these areas that have had a fairly consistent bid underneath them. Garner flows and I will say that we're to the point of the year too where you're going to start to probably see some performance chasing and things that have worked. And I think that as we head into the back end of the year, as long as the tech stuff has had a good year, you're going to continue to see that stuff garner flows. I think it's been really interesting to watch the way the semiconductor stocks have been performing because they've recovered, but they haven't really ripped higher, but they also haven't rolled over and died yet. So to me, that shows that we're kind of doing this sideways trading action, kind of marking time and maybe for lack of a better way of putting it, kind of growing into some of the move that we had earlier this year, that's kind of what we laid out as the best case scenario for what could happen with semis would be that it would just go sideways after having that multi-100% move in many of these names instead of just rolling back over. So, I think we're kind of getting that price action now.

Brian Pietrangelo [00:19:05]

Thanks, Steve. Final question for you, George. I know we've talked about it in the past, but we continue to think about the emphasis on real assets exposure with our audience. So share some of your thoughts on that area.

George Mateyo [00:19:16]

So Brian, for all the headlines that Steve mentioned, it does suggest that rates are going to be higher for longer, additional price pressures are going to be more persistent, and maybe as a way to kind of capture some additional exposure towards those type of things beyond traditional things like stocks and bonds, which are really important building blocks for any portfolio, real assets such as commodities or even commodity linked equities, which is a big part of Steve's strategy, those things can really play a meaningful role in diversifying a portfolio. And we've been talking about it for quite some time. We have certain tools that we've used and built to try and implement those where appropriate. It is a very volatile sector though, and there is probably some thought that As we said before, the cure for higher prices is not the Fed necessarily, but it's higher prices. I mean, at some point, prices rise so high that they choke off demand and they ultimately do fall. So there is some volatility associated with those tools, those instruments. But for a fully diversified portfolio, real assets can play a meaningful role to actually achieve overall diversification and provide maybe some immunization and some protection from volatility associated with higher inflation, as we've talked about in the last 20 minutes or so.

Brian Pietrangelo [00:20:27]

Well thanks for the conversation today George, Steve, and Rajeev, we appreciate your insights. And again, another program note this week for our upcoming National Client Call on September 29th. That's just a few weeks away, and we will be having a national call with George Mateo, along with Rajeev Sharma, and a special guest, Libby Cantrill, from PIMCO as a Managing Director of Public Policy. We will be discussing the countdown to the midterm elections politics policy in your portfolio, skewing more towards what it might mean for the markets and the economy rather than what it might mean for the political arena. Again, Tuesday, September 29th at 3 P.m. Eastern. If you need an invitation, please reach out to your KeyBank representative. Well thanks to our listeners for joining us today and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up in 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 [00:21:37]

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

September 11, 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 11th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We open today's podcast with a couple lighter topics as we will move towards a more difficult conversation with today's difficult day. But first up, if you're a tennis fan, you're enjoying the US Open and the tournament in New York. So tune in for that if you want to see some exciting tennis. Also, just yesterday was National 401k Day, which again is a tremendous opportunity to utilize a 401k account for tax-deferred savings to build up for retirement. So if you're taking advantage of that, great. If you're not, Please remember 401k day as sponsored by the Plan Sponsor Council of America for retirement savings for American workers. Also this week, there's an announcement that it is a reminder of National Suicide Prevention Awareness Day and month from the perspective of understanding that you might want to reach out just to see how some folks are doing and encourage them in the case that they need to use that hotline to definitely take advantage of it. And now of course, as we move towards 9-11, the 25th anniversary of the attacks on the World Trade Center in New York and multiple places throughout the United States, we record this podcast every Friday morning, so it's particularly challenging this morning as we take time to observe the anniversary in the event. There have already been many moments of silence beginning at 8.46 A.m. throughout the TV and the world in terms of observations that I've been watching on today's TV. So we will do the same here. Again, a moment of silence to always remember and never forget the event honoring those that sacrificed their lives, the heroes, the victims, the pain, the recovery. It is quite hard to believe it's 1/4 century that we remember the events back in 2001. And from that perspective, I know some individuals that are 25 years old this month. And it's very striking to me to talk about this from the perspective of how old you were at the time that the events occurred. And it's a responsibility that we all have to remind each other to unity, respect and love, and then teach those to always remember. So with that, we will observe a moment of silence in this particular case. So thank you for joining me in that moment of silence as we experience a very difficult day every year. And so with that, we will return to our regularly scheduled programming. where I'd like to introduce our panel of investing experts, hit or share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got three key economic release updates for you, plus a few updates on what's going on in the world and the markets as well. But first up, we've got the weekly initial unemployment claims report for the week ending September 5th, came in again almost exact as it was the week prior at just over 200,000 claims. And yet again, like a broken record in a good way, this number has remained extraordinarily consistent and low as a favorable indicator of the health of one of the data points for the overall employment market. And second, we have the existing home sales report from the National Association of Realtors and it shows a 2% decline in existing home sales for the month of August. which is not a surprise as it continues to be a fairly difficult market for turnover given where interest rates are and may or may not get getting worse with the yields backing up, 30-year mortgages hitting some close to all-time highs and again a potential Fed increase on the horizon. And third, we have the producer price index measure of inflation or wholesale prices, which continue to be elevated at up 0.4% in August or on an annualized basis around 4.7%, which continues to not be good and not moving in the right direction. And finally, 4th, the biggest news item for the week just occurred this morning with the release from the Bureau of Labor Statistics on the CPI or Consumer Price Index measure of inflation. Now overall CPI for the month of August was up 0.4% for all items and that is different from the core items which exclude food and energy which was up a little bit less at 0.3%. The difference there being certainly that gasoline prices rose significantly in the month of August relative to oil so ultimately that is a big driver. most economists and possibly the Fed were looking for a number that was less than or equal to 0.2% for the month, so not getting that really drives the equation a little bit differently towards a Fed rate hike here next week. The only notable positive read is that the all items index, when you exclude food and energy for a year-over-year basis, rose 2.4%, which is 1/10 down from 2.5% last month in July. That being said, we'll have a good dialogue with our participants on the panel today to get their read on what it might mean for the Fed and the economy. This week we also got news that the Iran conflict continues to be heightened with some activity over there that is certainly not favorable and then oil prices are up about $100 a barrel and that's again not favorable as well. We also had the market had a little bit of indigestion in the first couple days of the week. But this morning, as we record the podcast, the numbers are positive and green on the screen. So we'll see how that continues throughout the day. So let's get right to George for our first conversation with our panel to get his reaction on what the CPI numbers might mean for the Fed and the economy and anything else on your mind, George?

George Mateyo [00:06:43]

No, of course, I think, Brian, the biggest thing that deserves mention is what's happened in the inflation reports this past week. And just to kind of cut to the chase, the reports were a little bit hotter, as they say, than expected. Or in other words, maybe inflation prints are a little bit stronger than expected. And it was kind of broad based. There are some components we can kind of parse our way through to kind of maybe think that inflation is easy to some extent. But all is equal, I think it's fair to say that inflation, as we've kind of suggested in the past, probably is a bit stickier. And that's probably the big headline that we all have to kind of grapple with. And the markets are certainly repricing expectations for rate hikes and so forth. Overall, I think it kind of suggests that maybe there's this ongoing narrative around concerns around what's happening in the Middle East and prices at the pump. That's one factor for sure. The continued build out of the AI infrastructure is also pushing up inflation. And that's something we've also been signaling for quite some time. That remains in force. And I think it's fair to say that all else equal again, it's the same, it's likely that I think the economy is still in pretty good shape. So one reason I think that rates are rising that presents a bit of a silver lining has to do with the fact that the overall economy is in still pretty good shape. Now, it does kind of create the situation too that interest payments on various obligations such as mortgages, credit cards, and of course our own federal deficit and debt are also going up too, which is maybe somewhat worse. And so to some extent, this kind of notion where the economy is doing well enough that's kind of propping up rates and pushing prices up also has a downside effect. At some extent, maybe we see inflation actually coming down if in fact rates go up higher and also that causes spending and other things to fall back a little bit further. So I think it's a two steps forward, one steps back phenomenon. I think it's also important to recognize that what happens next with the economy is going to be largely up to policymakers and the response to that. And of course, next week, we'll start to hear from the Federal Reserve more specifically. They've been talking pretty vocally, Rajeev, about inflation being too hot for comfort. Now it seems like future markets are pricing in expectations of a rate hike. But what are your thoughts as we head into next week and what the Fed might do with the stronger than expected inflation readings that we've got this week?

Rajeev Sharma [00:09:04]

Well, once again, George, how quickly expectations can change based on data that we receive from the market. And that's really what Kevin Warsh has been saying, that you have to keep an eye on the data. And we do anticipate data being very important. So we get the CPI print delivers a hotter than expected reading and the knee jerk reaction that we saw where yields moved higher. But then very quickly the curve reversed action and we got into this bull flattening pattern where we're seeing longer end yields rallied. They started to move lower, sharply, faster at a faster clip than the front end of the yield curve. And why is this happening? Why did we have that reversal? While the hot core inflation print does push market expectations for a rate hike next week, but it's also put somewhat of a cap on how high long end yields can run, especially the long end, which is rallying with the view that near-term tightening would ultimately suppress inflation and cap terminal rates. The 10-year Treasury note yield also pulled back from that psychological level of 5%, which had been approached a few times right before the CPI print came out. So if we look at interest rate swaps, try to get a sense of what the Fed is going to do next week. The market right now does think that the Fed will raise rates at the September FOMC meeting. Those swaps now price close to a 90% probability that the Fed will hike interest rates by 25 basis points at the next meeting. And in fact, if you extrapolate that out, the interest rate swaps are now two full, are pricing in two full rate hikes by the year end. It's very interesting to see how things changed. Obviously, we've talked a lot about how these expectations have changed, and one data point does not make a trend. So the Fed does really have to think about how long the war is going to go on, the impact of oil prices, impact on inflation. Is it worth hiking rates right now, or do we continue to wait and see approach? Either way you want to look at it, we're looking at rates being higher for longer, at least in the near term. So you can expect that to continue. Now, one thing we did see is the ECB raised its deposit rate by 25 basis points to 2.5%. Now that is the second rate hike since the Iran War broke out in February. And after that, we saw global energy prices rising. ECB wanted to be preemptive. The move was pretty much anticipated that given the inflation backdrop. So it wasn't a surprise to the markets, but the ECB did say that they are not committed to any further tightening and will decide meeting by meeting. So if you decipher that, meeting by meeting means essentially data point by data point. If we look at swaps markets for Europe, October is totally in play for another hike and swaps are fully pricing in three more quarter point hikes by mid 2027 for Europe and greater than 50% chance that there could be a fourth rate hike. So we do get on this rate hike cycle. So you have basically on one side, you have a hawkish ECB. You combine that with this harder than expected US core CPI data, and you reinforce this theme that there's a broader global tightening narrative out there that gives the Fed some political cover and frankly analytical cover too to raise rates next week if they wanted to. So I think this is going to be very interesting. We did see dissensions last time we had a Fed meeting. We did see three. 3 dissenters that were calling for 25 base point rate hikes. So it's not against the realm of possibility that you get some more dissenters at this meeting and actually push for a rate hike. So this is going to be a very interesting one, George. Now, if you look at credit spreads, just to switch gears a little bit, we are seeing the impact on credit spreads, modest impacts. High yield spreads did drift modestly wider this week by 5 basis points. Given the oil backdrop, given oil going over $100 a barrel, you have the rising UST yields, US Treasury yields. Investment grade spreads also saw some modest widening, but also was a function of the fact that we had a lot of new issuance for the investment grade calendar this week. We had $68 billion in new investment grade paper come to the market. It was the 4th busiest week of 2026. And I would say demand remains constructive and these deals were very well oversubscribed. So liquidity in the credit markets continue, which is a good thing. Deals are getting done, which is a very good thing. I do think that if rates continue to move higher that we've seen in the last couple of trading sessions, you will start to see issuers come to market more frequently right now than to wait for a rate hike by the Fed and have to borrow a higher borrowing cost.

George Mateyo [00:13:36]

Well, speaking of higher borrowing costs, Rajeev, I think it's interesting. I don't know if you've got a thought on this, but of course the president was out this week talking about some type of dividend check to every American if certain things happen in the election and not make this too much of a political commentary, but if everybody gets a $5,000 check, and I don't know what the provisions of that, there might be some exemptions or some carve outs, but wouldn't that actually push inflation even higher?

Rajeev Sharma [00:14:02]

It would. And I think what would happen here is you have to think about the debt situation in the United States. Where is this roughly $1.3 trillion going to come from? I don't think that's going to help the situation as far as our fiscal deficit goes. And I do think that it's going to be a problem. So there's not a lot of details about this. The question really is, when you're running a fiscal deficit the way we are, it's going to be very difficult to have the support to do something like this. So not to get political or anything, but I think that it's going to be something that's going to be on the mind of how do we move forward to bring the deficit down if we keep adding to it.

George Mateyo [00:14:39]

So I think the other thing that we should probably talk about too, Steve, I'll get your thoughts on this, has to do with data centers. And another thing that the administration has been talking a lot about has to do with continued emphasis and really support for growth of data centers. And I would've thought this would've been a big election issue in 2028, but it seems like it's actually becoming an issue in 2026. Are you thinking, Steve, are you having thoughts about data centers and what that's also doing not only the stock market in certain sectors of the stock market, but the economy itself?

Steve Hoedt [00:15:12]

So the politics on this are fascinating because I think no matter what the outcome is of the election, you're still going to get data centers built because there's been enough grease put into the wheels of the machine that it doesn't matter who wins. So people can complain about it up one side and down the other. But this is going to be probably yet another example of the ballot box not really mattering in terms of an actual impact. When you look at what's going on, the reason behind that is very simple, because if you look at what's been driving US economic growth numbers for the last 18 to 24 months, it's been all of this data center and AI infrastructure stuff. It's pretty important to the economy. And it's really hard to see how this is gonna be reversed absent some type of apocalyptic kind of thing. And we can or we can go down the apocalyptic path if you want to, George.

George Mateyo [00:16:22]

Well, people I think who've tried to do that in the past have been very disappointing in the sense if we think about the time of, if we look at the epic of history, And of course, there's been other times in the past where people have been very concerned about certain events turned out very, very badly, very negatively. And those have not actually come true. So as we've said many times, I think it's important to really embrace optimism and really belong ingenuity. And I think that's been the winning trade.

Steve Hoedt [00:16:51]

Yeah, when you look at it, Obviously, the bad outcome that people think about with AI is the Terminator outcome, right? For lack of a better word. And I think if you look at typical technology adoption cycles, we don't go down that path. And will this time be different? I don't know. It's hard to make that case. You've got to think that there will be developments that will occur that won't allow us to to have that really bad outcome, right?

Brian Pietrangelo [00:17:30]

Steve, let's talk about something a little adjacent to that maybe, which is housing. We haven't talked about housing in a while and it continues to be stalled on a decline on existing sales month over month. But what are your thoughts about housing as it relates to data center locations? Where do you see that going?

Steve Hoedt [00:17:48]

I mean, that's a good question. Housing in general has been under pressure because of what's been going on in the rates market. And the discussion that Rajeev and George were having earlier there, I mean, this really does look to me to be a global phenomenon. And if you look at 10-year yields across the board, whether it's the US, Germany, Japan, the UK, pick your country, 10-year yields are moving up into the right. That tells me something's going on. And it's not necessarily just the deficit spending situation in the United States that's causing it. And that something is likely inflation. And given that, the housing market has been under significant pressure because mortgage rates have been higher than people would like them to be for quite a while. And it does not look like that's going to change anytime soon. When you look at the data center locations, it's puts and takes, right? So if you live in an area where data centers are going in, that is going to be stimulative to the economy because you're going to have more workers and theoretically higher paying jobs even after the construction process is done. There's jobs associated with that. So you would think that would be a positive. But on the flip side, If you live too close to it, you've got noise pollution and other stuff, maybe water issues, things like this that potentially negatively impact quality of life. So I don't know how far the distance is from that, that it has a potentially negative impact. Again, I mean, I've said on these calls before, I live within 6 miles of one of the largest projects in the United States. I can tell you we've had quality of life impacts from the traffic that's been hauling stuff in and out of that construction site. Who knows what it's going to be like once it goes online. And there's a lot of talk about the impact on the water stuff around us. So I think some of this stuff is to be determined yet. And I think that people are aware of where these are. And it's going to be something that is potentially going to start to factor into things like that. But is it going to be a major driver of overall US housing prices? Probably not. I think that's going to be really tied to the global rates outlook and inflation.

Brian Pietrangelo [00:20:19]

Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your insights. Before we close the podcast, we've got a program note. We talked about it last week. We'll talk about it again for the next couple of weeks. And that is, we've got a national client call coming up on September 29th. We'll have George and Rajeev joined by Libby Cantrill of PIMCO to talk about the midterm elections and what it might mean for the markets and the economy. So if you need an invite, please reach out to your relationship manager. Again, Tuesday, September 29th at 3 P.m. Eastern. 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 either next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:21:24]

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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