Key Wealth Matters Podcasts

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, November 13, 2026. I'm Brian Pietrangelo and welcome to the podcast. And this morning I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at the market and economic news, we've got two key economic releases for you and then certainly a lot going on in the stock market so we'll talk about that. But first up, we have the overall existing home sales report that came out from the National Association of Realtors. for the month of October 2026, where existing home sales decreased by 5.5% month over month, which was most difficult and probably the difficulty around mortgage rates significantly being their highest level since the year 2000. And so that is crimping overall existing home sales as we talked about that imbalance between supply and demand. And second up, we had the Consumer Price Index report for inflation for the month of October 2026. All items came in on a month-over-month basis at 0.4%. Core items excluding food and energy 0.3% continued to be hotter than expected and continued to be significantly persistent. The year-over-year numbers could not officially be calculated because of the government shutdown a year ago in October of 2025. However, using some calculations relative to where we think it would be, That number for all items is around a 4% increase year over year and core, excluding food and energy, about a 2.8% year over year increase. Again, these remain significantly high, well above the Fed's 2% goal. So it has implications for future Fed meetings coming up in December and then the first quarter of 2027. And the producer price index just this morning was also a bit hot, so we continue to see the same conundrum around the inflation challenge with regard to both producer price index reports and consumer. And of course, within the stock market, the big news of the week was with Nvidia, so we will certainly have a robust discussion around what's going on there and with semiconductors in the market. So I'll just lead off with George and see his opening remarks, and then we'll have Steve join us in terms of what's going on with Nvidia. But before we do that, we'll also have a commentary later on in the day with Rajeev on the Fed and inflation. So let's get right to George. George, what are your opening remarks?

George Mateyo [00:03:18]

So Brian, it's an interesting time. I'm not sure exactly where to start, to be honest with you, but we'll probably just kind of kick it off by talking about Nvidia, the stock that doesn't deserve this much attention, but it's getting a ton of attention. And it's a stock that we've talked a little bit about in the past. We often don't talk about individual companies that much on these conversations, but this is definitely an exception that's deserved. So of course, Innoviti is in the spotlight this week. It's been in the spotlight for the past few weeks, given a lot of the news that's been out about the company, around the founder, and now the former CEO that essentially has captivated a lot of attention. And I think it's fair to say that this is a story, in my view, that has a wide range of implications and ramifications, not only for the economy, for the market, but certainly perhaps around the notion around AI itself and kind of where we go from here. This is a large company. The company now is still some 6.5% or so of major market indices. It got above 8% not too long ago. So it's a really outsized position for many portfolios. And I think it probably deserves a lot of attention. It's hard to really kind of understate the magnitude here because the company was not only really at the epicenter of AI, but it really was at the epicenter of national security and geopolitical concerns as well, in the sense that chips and semiconductors have essentially become the new trade du jour. I mean, it's really been the trade It's been really kind of the overall arching theme around national security and the need to have chips made in our country versus somewhere else that's really thrusted this company into the spotlight. And along with that, this company has really been essentially banking other companies in the development of AI as well. So there's probably just so many unknowables, we just can't begin to think of all of them. But I do think it's going to provide probably a lot of volatility in the next few weeks or so. This is going to probably last a lot longer than people would like it to be, in my view. And I think this is nothing else to kind of reinforce the notion that you want to think about portfolio exposure and think about how you own certain stocks, how you actually weight those stocks in your portfolio, and to what extent you actually make sure you actively review your portfolio and think about taking steps to rebalance exposures when they become outsized. So I don't know exactly where to start, Steve. I mean, this is an extraordinary company and an extraordinary time. Love to get your thoughts on maybe where you think we're headed in terms of things we should think about, maybe as it relates to the market impact first, and then we can talk about the geopolitics second.

Steve Hoedt [00:05:42]

Yeah, George, you know, when you look at this, just from a practical perspective, NVIDIA peaked at a little over 8.9% of the S&P 500 back on May 14th. And as we sit here today, it's a little over 6.1% of the S&P 500. So, we've already seen 280 basis points of market cap shift to other stocks as this stock has come under significant pressure. That being said, it's still up more than 400% off of the lows that we saw coming out of the post-COVID boom, say so late 2022. So look, investors across the board have large embedded gains in this name. Most people who've been involved with it have typically been involved with it for a pretty long time. So, the question that a lot of people are asking is, is it over for this company? And I think that that is probably too big of a leap to make. But obviously the revelations of the last couple of weeks have been shocking to everyone involved. And really the question right now is, where do we go from here? When you look at the company itself, obviously it's been at the epicenter of the AI revolution for a whole host of reasons. Their chips have been what people have been using to put the revolution together to begin with. Their balance sheet has been used and extended to extend financing to people all across the AI ecosystem. And the question is, is that are all these things going to continue? Is this company going to continue to be a leader in this space? And when you look at the management depth, the fact is that Jensen Huang had 60 people plus reporting to him. It was not a typically structured organization. I don't want to call it a cult of personality because I don't think it extends to Elon Musk levels there. But I think that what we see there, though, is a company where clearly the founder and Jensen (Huang) founded the company in 1993. It's the typical Silicon Valley garage startup story, right? where he maintained a significant amount of control all the way through the development arc of this firm. And that control was never really relinquished in any significant way. And the board never stepped up and took any away from him. So when you look at it today, the company is going to have to kind of go through a period of catharsis where it restructures its management team into a more traditional management structure. And at the very least, from an investment perspective, the company is going to be in a penalty box phase while it goes through this because people don't know what to expect over the next three, six, 12 months. So like everything that people had talked about before is now kind of thrown up in the air. And it opens the door for competitors like AMD and others to potentially take significant market share, whether it's AMD or whether it's Alphabet/Google with their TPU chips or the Chinese companies with what they're doing. It just seems like the competitive dynamics now over the next 6 to 12 months are in a complete state of flux where I think two weeks ago prior to this coming, people still felt Nvidia was going to remain the epicenter of the AI revolution.

George Mateyo [00:09:51]

Do you think it derails the AI acceleration? In other words, you're right to point out that I think other competition or other competitors rather will probably look at this as a chance to try and gain share to some extent. And I don't know how deep or how wide Nvidia's moat is to actually defend that. So this may be one thing, but then again, more broadly, is there some potential issue that we should be thinking about, Steve, as it relates to just the fact that AI has been so dominant in terms of its impact on corporate earnings overall, it's been dominant on the overall build out of capital expenditures and GDP itself. So again, it's probably an unanswerable question. We just really can't get our head around it, but first of all, what do you think the competitive landscape looks like? And then maybe more broadly, what does this do to the AI theme and trade going forward?

Steve Hoedt [00:10:45]

So George, with the coming public offering of Anthropic and others, it's like it's created a, there's been a large conversation evolving in the market over the last couple of months. And I think that when you look at it, there's a real debate in the market about what's the path forward for AI, meaning is it going to be with these large closed source models like Anthropic or OpenAI? Or is the market going to trend toward open source solutions, not just the Chinese ones, but others, and see if if open source solutions are the true way to go with this. And that has really massive implications for the build out, number one, because if you go with open source solutions, what that means is that the companies that adopt AI, which are literally going to be pretty much everybody across the board, you're going to end up building your own small server location and handling it yourself as a company because it's cheaper to do that and more efficient to do that than it is to go and pay for tokens and basically rent cloud computing capacity from these hyperscalers. The reason why, I mean, it sounds like it's esoteric, right? But it's not because then if you go the open source path, the companies that are going to benefit are the Nvidia’s and the AMDs and the companies that make racks the boxes, Dell Technologies, other stuff. And we're not recommending any of these names that we're throwing out. I'm just using them as examples of people that are in places in the ecosystem. Okay. And, you know, if open source is the way that is going to be the stuff that benefits the most. Right now, what you see is you see a ton of stuff going into the data centers and it's the data center build out theme. So it's like giant air conditioning units and all this kind of stuff. Caterpillar for pushing dirt around, other things. And that stuff really will not be the way you want to reflect the AI thematic going forward. It would rotate back toward these boxes and racks and and semiconductor chips, right? So, I think there's an open debate in the market right now about which way this is going to go and if we rotate that way, then these things that maybe were AI 1.0 plays two years ago come back to being where people want to be. And I think that's what's been really shocking to people about what's happened with Nvidia is because Nvidia was viewed by many investors as being the primary way to play that potential rotation toward open source and now it's an open question whether or not that's going to be the way people want to go there or not. And I think that is really where it comes down to right now for investors. Are these guys going to have their act together enough to benefit from that or not?

George Mateyo [00:13:54]

So, it's interesting in the open source debate. I think there's probably a plausible argument that somebody could make that maybe the federal government, the US government gets involved to some extent, right? Because this is almost viewed as a national issue, national security issue.

Steve Hoedt [00:14:09]

Well, and Nvidia has been viewed as a national champion, George. I mean, if you want to think about it like in terms of geopolitics and nations picking winners or companies to to advance their views. It's been very clear that Nvidia and a national champion. But you know, something that I was thinking about the other the other night, like there's a reason and this is, you know, not to get into conspiracy theories, but there's a reason why the State Department did not allow Jensen Huang to get on that plane to fly to China in October last year. And it seems like there are people in the government that have known this for a while or at least have had their suspicions for a while. Maybe it didn't obviously reach the market for perception, but like the whole situation now, when you look back on it, hindsight, it's like there were, I guess, were signs there that there was something that was amiss.

George Mateyo [00:15:10]

Well, one other element, Rajeev, we should probably talk about has to do with credit in the sense that as Steve acknowledged, and we've talked about previously as well, is the concept that Nvidia has been financing or has financed a lot of its customers in the sense that they've kind of provided credit support of themselves, they've provided direct financing, they've actually provided some backups rather to certain companies that are building out this infrastructure. I'm curious to know from your seat, Rajeev, if you're seeing any issues in the credit markets that should be notable. Obviously the equity markets are taking this and digesting this and we're kind of seeing continued pressure this morning. Not only in Nvidia, but the broader tech sector overall. What type of things are you looking at in the credit market that maybe are either a cause for concern or maybe things that are probably less concerning from your scene?

Rajeev Sharma [00:15:58]

Well, that's a very good question, George, because Nvidia, this is one of those names, AA rated credit, a lot of demand for the name in the market. They did come with a jumbo deal this year. If you look at the credit default swaps for Nvidia, they surged from around 40 basis points in early 2026 to around 131 basis points right now this morning. And that's more than tripling since mid-year. This was not a function of the headlines that came out this week. Credit default swaps on the name have been largely driven by a sequence of events that have kind of repriced the company's credit risk. Nvidia had a $25 billion bond sale earlier this year, and then they announced a $500 billion AI financing plan. And that's what really took CDS wider. And then the news came out on the CEO resigning. So, there are a couple of factors in the mind of bond investors right now, especially if you're talking about Nvidia. A couple of questions that do come to mind. One, is there gonna be a balance sheet transformation? You have a company that was a near zero debt issuer that moved to one big solid jumbo deal of $25 billion in a single transaction. Is that gonna start to change? What is the scale of AI financing commitments that raises questions about off balance sheet financing for Nvidia? What's that exposure gonna look like? And then the big one about governance and governance risk, and the uncertainty surrounding potential regulatory scrutiny. So, these are weighing on the minds of bond investors. If you look at the 30-year Nvidia bonds out there, they're trading at a meaningful discount, almost 15 points discounted to par. And again, that reflects the rate sell off this week, but also credit spread widening tied to the headlines that we saw this week and the governance concerns. Now, if you look at the complex of Nvidia itself, there are short duration Nvidia bonds out there, and then there's the 30-year bonds out there. The short duration credit spreads have not really moved at all on the news, but the questions now come out. Does Nvidia slow down investments with its AI players? Would that be a systemic impact to the AI ecosystem? US export restrictions are another discussion that we talk about that could circumvent some of the US export limits. It's unlikely that an AI buildout will slow down, but there are some political risks here that I think everybody investor starts to hone in on. Even with the AA rating that it has, that's not guaranteed it's going to stay that way. We haven't heard rating agencies chime in yet on this, but I do think that this is something that could be something that could cause systemic risk in the credit markets, as I said. Credit spreads have not moved significantly on the news, but credit default swaps have. And I think that's very important to have that distinction.

George Mateyo [00:18:56]

I guess the other dimension too, Rajeev, to make this a bit of a wider conversation is what the Fed might be thinking about in response to this, if anything at all. I mean, I know they don't want to get involved in picking companies or picking stocks, at least not right now. But alongside the build out of AI and the excitement around it, we've seen inflation move up. And inflation is probably part and parcel due to a lot of other things. But the infrastructure with AI and the excitement around that has probably caused prices to come up as well. If we start to see some type of curtailment perhaps, or maybe some slowdown in the spending, maybe that bodes well for inflation. But are you seeing, again, this week has been kind of an interesting week because some of the inflation numbers that have come out have been a little bit hotter than expected. Have you seen any significant changes for Fed expectations as relates to rate hikes for next year?

Rajeev Sharma [00:19:48]

Absolutely, George. So you are right, the Feds are not going to probably come out and comment specifically on the company, but they have commented on the past about AI being the eventual, the benefits of AI and the AI build out is going to be a future where you'd have inflation coming down because of economic gains through AI. Right now, the Fed is squarely focused on the inflation data. It was a pretty rough week for fixed income markets. Treasury sold off across the curve. And again, the whole thing points back to the hotter than expected inflation data that we saw. And then you do have some Fed members that have come out this week. They haven't specifically spoke to AI or sector specific or any specific names, but they have pointed directly at the inflation data that we saw this week and you saw some of this hawkish comment come out of Fed members. The bond index itself this week lost over 1.25% and it had a lot to do with the inflation print that came out. So, you did see, you know, you did have the narrative being supported by Fed speak this week. We had Fed Governor (Christopher) Waller, New York Fed President (John) Williams. They both signaled for further rate hikes in their commentary. They reinforced a tightening bias in the market. You do have other factors here like added supply, treasury supply came to the market this week, keeps pressure on yields. And really what you're seeing here is a kind of a repricing of what the Fed does as far as rate hikes and their hiking path going forward. There's money markets right now adding bets on at least two additional rate hikes by mid-2027. They're even pricing in right now a very small probability, but a probably nonetheless of a 50-basis point rate hike at the December FOMC meeting in the coming few weeks. So that shows you how sensitive this market is to inflation data. Fed commentary definitely points towards inflation being the number one priority for the Fed to bring that down. So, you're going to start seeing some volatility around the FOMC dates that we're going to have. And I do think that with more Fed members speaking, that December FOMC figure 50 basis points is not out of the realm of reality.

Brian Pietrangelo [00:22:00]

Rajeev, we had 10 to two dissent last meeting in September, or in October, I should say. I think it's going to be even more in December.

Rajeev Sharma [00:22:08]

I do think it's going to be more there. I think that you'll see more dissents because as you hear more and more Fed speakers, some of them have voiced the opinion that 25 basis points wasn't enough the first go around. Some have also voiced their opinion that we should kept the foot on the pedal and had another 25 basis point rate hike at the last meeting. Pretty sure that we're going to see some more dissents at this next one. And as Fed Chair Warsh says, he encourages debate. So you'll see a few more voices in the market.

Brian Pietrangelo [00:22:40]

Well, thanks for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And before we close the podcast, two program notes. First up, I want to give a shout out to the students at Miami University in Oxford, Ohio, at the Farmer School of Business. I'm joining them today to have a workshop on wealth management and really appreciate the engagement. So, thanks to the students for that. Second up, want to give you an advance notice of our upcoming national client call that will take place on December 2nd where we in the Chief Investment Office will be providing our 2027 market and economic outlook. So, look for further information from your client relationship manager if you're looking for an invite and we hope to see you there again on December 2nd for our client national call. 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 next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

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Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, November 6th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. And we certainly have a lot to discuss this week, especially with one of the most important functions of the United States freedom is that the democratic process of voting certainly played out in the midterm elections this week. And we will certainly have a robust dialogue on that topic with our panel today. But before we do, I would like to spend a little bit of time looking forward to next week and talking about something else very important here for the United States of America, and that is upcoming veteran's day. As you may know, veteran's day is a federal holiday which falls on November 11th next week, and it is designated a day to honor roughly the 20 million men and women who have served in the military. Now the history of the honoring of the veterans was first observed back on November 11th, 1919, originally known as Armistice Day, in honor of the 1st anniversary of the end of World War I, which officially ended on the 11th hour of the 11th day of the 11th month in 1918. It was later approved by Congress as a federal holiday and back in 1954 President Dwight Eisenhower officially changed the name of the holiday from Armistice Day to veteran's day as it is currently known. So I'd like to take this time again to offer a consideration that you find a veteran in your neighborhood or in your family and tell them how much you appreciate their service as they do put their lives on the line for the potential ultimate sacrifice and those that have served certainly have earned the veteran status. And in particular, I have veterans in my own family and I am pleasantly surprised to see how much they have really dedicated their lives to serving our country for the freedoms that we have and I'm immensely proud of the service that they have given. And as we say all the time, freedom is not free, and we honor those who have served in many wars over our history as the United States and in the current format, given what we do every single day to provide those freedoms for which we live in the United States of America. So find a veteran and tell them you appreciate their service. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we have three key economic releases for you, and we've also got a whole bunch of other stuff going on with the midterm elections and with the market. So we will begin first with our first economic update, which is the ISM Services and Manufacturing PMI reports for this week. The manufacturing index actually increased as of the October report which was somewhat mildly above the September report which is good news that manufacturing in the United States continues to strengthen a little bit even if though it's mild. And on the services side it was ever so slightly a decline from the prior month which did not seem to be material as the services industry has been fairly robust for about 5 years. So again we'll continue to take that as good news for at least this month. And second, from the Bureau of Labor Statistics earlier this week, the Job Openings and Labor Turnover Survey Report, known as the JOLTS Report, gives us the number of job openings that was released for the month of September, which was 7.5 million, which was mildly up from the 7.2 million that we got in the prior month. So job openings again indicates the strength of employers willing to hire and post jobs, so that's headed in the right direction in terms of job markets. And third, also from the BLS, we got the non-farm payroll report within the employment situation report, known as, again, the non-farm payroll report. So it came in at 165,000 new non-farm payrolls for the month of October, and the unemployment rate changed little at 4.1%. It's basically been at the 4.1 to 4.2% for about a year. So that unemployment rate hasn't changed much. The big news out of that report was the non-farm payroll employment at 165,000. for the month, which was about 2x on the estimates for the month. In addition, the strength of the report is also there given that the two-month normal revision process for August and September, the two prior months, showed an increase of 84,000 in jobs that were not previously reported. And that's a pretty good indicator because usually the revisions are negative. So to get a positive revision is again strengthening the 165,000 for the month. And of course, we have the election results and market volatility right after the two days of the election results, which we will certainly get to. So let's go right there and talk to George to get his reaction on the economic data and certainly elections. George, let's get your thoughts on today's news.

George Mateyo [00:05:34]

So I think we have to acknowledge at the onset, Brian, that the story of the week, if you will, probably occurred Tuesday night, Wednesday morning when we had the results of the midterms come rolling in. And I think it's fair to say that the results aren't officially final. I think there's a couple of votes that still have to be tallied and counted and so forth. So we're maybe a little preliminary in saying this, but I think it is pretty conclusive right now that it seems like the Democrats had a resounding win on Tuesday night, Wednesday morning. They now seem to be firmly in control of Congress, or they will be when the new Congress is seated. And they also secured a number of important state governorships as well. I think a positive from this, irrespective of your political views, has to do with the fact that the margin of victory was really decisive. And I say that as a positive because I think it does remove ostensibly and probably mostly any concerns about some contest or questioning around the overall outcome. And I think that removes a level of uncertainty. In other words, I think the markets might have been a little bit anticipatory and maybe a little bit anxious as to whether or not the outcome might not be known for weeks in some cases or maybe even longer, but we didn't have that, right? The outcome was pretty clear cut. And again, we're not here to pick sides and to say who won or who lost, but just looking at things objectively, I think it's fair to say that the outcome was pretty clear. So now that we've kind of get that out of the way, markets are now really kind of turning their focus inward and thinking about what does it mean to have one party actually have both sides of Both chambers of Congress, what does it mean to have one party, the same party, also involved in setting most of the policy agenda at the state level? And I think it is fair to say that at the same time, while that's true, it's also fair to say that the power of the pen still resides for the president who's in a different political party. And so again, he can still use his veto pen. He can also execute executive orders, which he's been doing for quite some time as well. So to some extent, this doesn't change the overall environment too much, in my view. It creates some uncertainty. And I think the big question that the markets are trying to grapple now has to do at the state and local level. Yes, there's a lot of things we could talk about from the federal perspective. We might get into that a little bit later. But I think the epicenter right now, the debate seems to be a focus on the state level and even local level politics. And I say that because there were a lot of initiatives on many ballots across the country. that had to do with data centers and the buildout of data centers, the infrastructure needed, zoning requirements, power requirements and so forth. And there were even some restrictions and some outright bans that were discussed as well. Now, I think that kind of introduces a level of uncertainty because of course, as we've been talking about now for the better part of 18, 24 months or so, that the overall backdrop of the economy has really, no pun intended, been powered by AI and the buildout of artificial intelligence. And now if there's some questions as to the slowing down of that, or maybe the curtailment of that, that does actually cause maybe people to really think about that level of the economy being a little bit less robust than it was. I don't think it's going to go away. I don't think it's going to be removed entirely. And so to some extent, when markets start to think that it's all or nothing, that presents opportunities as well. But for now, it does introduce some uncertainty, and it causes us to rethink about just what that means probably from the perspective of growth? What does it mean for the perspective of inflation? What does it have to do with employment trends as well? And I think, frankly, it's a little bit truly to say for sure. But Steve, I think I would turn it over you first of all to get your thoughts on just some of the sectors in the market in the past few days have undergone tremendous amount of volatility. And I'd be kind of curious to get your thoughts on what you think this means for the broader equity market now that we've seen maybe some people questioning the strength of the AI trade as we know it.

Steve Hoedt [00:09:31]

Yeah, George, I think that the moment on Tuesday night when things from a markets perspective started to have a real adjustment was when it became apparent that the Republicans were going to lose the governorship in the state of Texas. And I think the reason for that is obviously Governor Abbott down there put a temporary moratorium on data centers in order to try to curry some favor there, but he got pretty much smoked by the blue team candidate. And at the end of the day, that started the market to question where the true bottleneck going forward is gonna be for AI. So, if you think about what the bottleneck has been for the last year, people have been really focused on semiconductors and memory. And that was viewed as the key bottleneck going forward. And that you were going to be able to build as many data centers as you want, but you weren't going to be able to get the stuff to go in the data centers in order to be able to do the AI stuff. If you think about the way the market is looking at it today, the market is thinking, well, we're going to be able to get plenty of chips. But now the gating factor is there aren't going to be enough data center buildings that are going to be permitted and able to be built to put all the stuff in. So then you're going to get a glut. of chips or racks or whatever you want to call this stuff sitting there, boxes needing to go in another box that hasn't been built yet. And the market basically went through a huge adjustment with the semiconductor complex in the last couple of days as it adjusted or tries to get its arms around what all this means. And I think The truth is that we don't really know 100%, right? I think to back away completely from the data center situation is not something that's going to happen. It's an economic reality that's necessary for a whole host of reasons, not the least of which is that it's been pretty much driving all of the non-residential construction that's been underpinning the strength of the economy for the last two years. But even more importantly, it's a national strategic imperative, right? So we don't wanna lose leadership in this to somebody like China or another international geopolitical competitor. So at the end of the day, the stuff is probably gonna get built, but what's gonna end up happening is it's gonna happen slower than what people may have thought before. And it is causing a ripple effect in the markets as we try to adjust to this. I think our view is that as long as the cash flows are there from the hyperscalers and the access to credit market availability remains there, that the AI trade is likely to continue. But it doesn't mean that it's going to be a straight line and that it's going to be just up and to the right for everything.

George Mateyo [00:12:46]

Yeah, I think the situation in Texas is quite interesting. And certainly where I sit here in Ohio, there's another, there's a lot of whole another set of debates and conversations being had. And I think the incoming governor or the governor elect in Texas has said that she'd like to build AI right, but she's not saying don't build at all. So I think we have to make that distinction as well. And your point, Steve, I think it does probably extend the time horizon with which these facilities get built. that actually does have an impact on the economics of the projects themselves. And certainly some companies probably aren't going to be able to withstand that because as we've been talking about, I don't know, for the past few weeks, we also acknowledge that higher rates are having an impact on some of these companies too. And that's something that in the past, I can remember people saying that technology companies were immune from higher rates. Well, that's clearly not the case now. And the credit markets are having an impact and having their say for sure. So that's probably a good way to probably bring Rajeev to the conversation and knowing that credit markets and really well functioning and well orderly credit markets are important for any economy. But now given the fact that AI itself, Rajeev, has become a dominant theme in the credit markets, what trends are you seeing that we should be watching as relates to the overall build out of data centers and what it means again for the direction of the economy going forward based on your thoughts on credit?

Rajeev Sharma [00:14:06]

All very good questions, George. We've seen rates move higher. That did put some pressure on some of these AI hyperscalers that are planning to come to market to raise money for CapEx hitting the debt markets. So far, we've seen a pretty decent investor reception to these new deals, these jumbo deals that have been coming to the market. But I think as we move forward into 2027, we're going to see investors start to ask for more concession on these deals in order to play with them because they know that there's a huge pipeline of new issues that's planning to hit the market. And we see the effects on the treasury market in the bond markets. Treasury yields fell across the curve this week and it was pretty much driven by this flight to quality or safety haven bid that we've been seeing after some of the sharp equity sell-off moves that we saw on Thursday. We saw the front end really lead the rally and it produced a modest bull steepening of the curve. But Friday's stronger than expected October jobs report caused the yields to move higher. So on the week we have, we've seen the two-year Treasury yield fall about 6 basis points to 4.5%. 10-year yields have dropped 4 basis points to 4.9%. And the 10-year did hit an intraday low on Thursday at 4.8%. And that was the lowest level that we've seen since early September. Now, if you look at investment grade spreads, as you mentioned, George, they were essentially flat to marginally tighter on the week. And they're really being supported by a pretty robust new issue calendar. Now, we talk about names in the space of AI. We saw some big names come to market this week. Oracle, Meta, Apple, they raised over $30 billion and they got the weekly investment grade insurance to around $75 billion. These deals all did well. They all replaced pretty nicely. I think investors are still hungry for these names, maybe not Oracle as much. Oracle had to come with some major concessions. But that does make this the fourth busiest week for the year as far as nutritions goes for investment grade. Now, we did see high yield spreads edge wider this week, and that correlates with the risk-off tone that we've been seeing throughout the week in the markets. I would highlight, not to switch gears too much, but I would highlight that municipal bonds outperformed treasuries on the week. We did see the 10-year muni treasury ratio fall to about 68% compared to 70% where we saw the prior week. So the key themes that we're seeing in the bond market right now is we saw flight to quality. Thursday's equity selloff, which was AI and tech driven, was a dominant factor to why investors poured into treasuries. Then you get the hot payrolls number, which starts to put the December FOMC meeting into the spotlight. Right now, if you look at the odds for the December meeting, the odds of a 25 basis point rate hike at the upcoming December 9th meeting, FOMC meeting, they stand around 80%. And you have a labor market that's adding 165,000 jobs unemployment rate has fallen. It gives the Fed very little justification to do another pause at the December FOMC meeting. Now the key data point that the markets are going to be looking at and the Fed is going to be looking at is the November CPI report. If we get a hot print there, then you will start seeing odds of a rate hike move to above 90% for a rate hike for the December meeting. Any kind of downside surprise that we see in that number, those odds can point towards a Fed that has an ability to pause. But right now, I don't think the market's expecting that. Now, what will keep pressure on yields are these concerns about some of the contentious debt ceiling debates that we're going to have in the upcoming months. You mentioned the midterm sweep for the Democrats. This is all going to lead to some really strong debates about the debt ceiling, expanded spending ambitions to take into account for affordability and health care. You combine that with the existing deficit, it could keep the bond markets on edge well into 2027. And it's going to, in my opinion, be a headwind for long duration treasuries.

Steve Hoedt [00:17:58]

Hey, Rajeev, one thing that caught my attention in the sell off to the end of the week was that we've finally seen BAA spreads start to widen out relative. And while we haven't broken through the year to date high yet, we're right on a cusp of it. So I'm curious about what your thoughts are regarding what the signal is, if any, from what's going on in the credit markets. Because we've been talking about CCCs being really weak on this call and how it's not representative and how we were watching the other levels of high yield for signals. And while the single Bs are still not at a new high for the year to date, BAAs are within hailing distance right now. So your thoughts on credit?

Steve Hoedt [00:18:47]

It's a very good point, Steve, because BBBs are such a big part, over 50% of the investor grade bond universe. You don't expect those names to widen out too much because there's so many names in that space. But now that we're seeing widening there, it is showing you that there might be some indigestion with all the new issuance that we've been seeing in the BBB space. You have these jumbo deals coming into the market. Investors want to get paid for this and you're starting to see more concessions on these new deals, which is really pulling out, pushing out the secondary markets wider. And if we're looking for a canary in the coal mine, we haven't seen it yet. But I do think that if you have a Fed that's raising rates and you have AI names that come under a little more pressure, we could start seeing the BBB space being that canary in the coal mine. So definitely have to keep an eye on that one.

Brian Pietrangelo [00:19:35]

So great discussion, everyone. We're going to go to George to give some final remarks. Putting all this together now that we have the midterm elections behind us and we're focusing more on the traditional economic and market factors. George, what words of advice do you have for investors?

George Mateyo [00:19:50]

Well, I don't know if we're really quite, if the midterm are behind us in the sense that I think we're still processing kind of what the outcomes might mean for policy going forward. That said, I think you're 100% correct, Brian, that we'd like to have people maybe take their politics out of their policy discussions or on their portfolio if they can, kind of remove your politics from that discussion. And I think the market is probably on a long-term basis still going to focus on those things as we often talk about on these calls, which are fundamentals and valuations, corporate profits. You have one report that you mentioned, Fed policy and so forth. And I think we've also been arguing for some time now that you need really robust diversification in this environment, right? So the notion that certain indices that people use for their portfolios have become concentrated and they've been really exposed to AI as this theme, as Steve talked about, it's not just one industry, it's multiple industries that have been tethered to this idea or maybe kind of attached to the narrative around artificial intelligence. And that makes sense to me on certain levels, but it also introduces other forms of risks. that are probably best thought through in a very surgical way. So what I'm trying to say is that I think you need to be cognizant of the overall exposures in your portfolio. Think about how your indices and even just common benchmarks may be exposed to artificial intelligence. Not a bad thing in our view, but there's still, I think, a lot of long-term drivers that can be very positive. But at the same time, you want to make sure you're not concentrated in one particular theme, because if this theme does start to really wobble a bit further, you're probably going to regret that. So I think the overall theme I would continue to emphasize is really robust diversification and really being disciplined around that theme when you think about portfolio construction on a long-term basis.

Brian Pietrangelo [00:21:34]

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

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Brian Pietrangelo [00:00:01]

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, October 30th, 2026. I'm Brian Peterangelo and welcome to the podcast. We've got a lot to discuss this week. There is a lot going on in the markets and the economy. But before that, it's a pleasure that today I am back on campus of my alma mater at Miami University in Oxford, Ohio. I am meeting with the students at the Farmer School of Business within Miami University to talk about the wealth management industry. And it's just a great opportunity to reconnect with another generation. In addition, we've got Halloween this weekend, so make sure you're stocked up on candy for all the trick-or-treaters and make sure you're safe out there if you happen to be driving in and around the time of trick-or-treat. 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. Steve Hoedt, Head of Equities, and Cindy Honcharenko, Director of Fixed Income Portfolio Management. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got three key economic releases for you beginning first up with the gross domestic product for the third quarter of 2026. Now, we get the advanced or initial estimate, which showed that there was a 3.4% increase, which was very strong, especially relative to the prior quarter of Q2, which was only at 2.2%. Now, if we look at the subcomponents of real GDP, we've got two big drivers. The first is consumer spending continues to be resilient as consumers continue to spend money in spite of higher inflation. Also, we've got strong results in private fixed investments, which is synonymous with the artificial intelligence buildout and its infrastructure. so net net pretty strong report we'll have to continue to see if this is persistent in terms of the AI build out and consumer spending or if things are beginning to peak and second also from the Bureau of Economic Analysis we received the real PCE or personal consumptions expenditures measure of inflation yesterday And it showed on a year over year basis, all items were up 3.6%, which continues to be very elevated. And if you exclude food and energy known as core PCE, it increased 3.1% year over year, again, going in the wrong direction. Now, both of these were slightly higher than the previous month, again, going in the wrong direction, but also culminating with the AI build out and other consumer spending that we're talking about relative to inflation. Now, certainly we've also got some energy inflation there with gasoline and price at the pump relative to what's going on across the pond. But ultimately, these factors continue to contribute to inflation in a persistent way. And that leads us up to our third item, which is the inflation connection that continues to be a challenge for the Federal Reserve and the Federal Open Market Committee had its meeting this prior Wednesday where they announced that there will be no action and no change in the Fed funds rate. We'll continue to dive in more of that when we have our conversation with our panel today. But ultimately, it's a no decision and a hold as we move into the latter half of November and December. We'll also talk Q3 earnings with Steve and a tumultuous week here in some stocks that had some significant volatility. And then we'll try to round out the podcast panel discussion with what might be our view on the midterm elections next week. So let's get right to Cindy Honcharenko to give us an update on what the Fed did this week in terms of their decision and what it might mean for the markets and the economy. Cindy?

Cindy Honcharenko [00:04:18]

So the Federal Reserve left interest rates unchanged at its October meeting, maintaining the Fed funds target range at 3.75% to 4%. The decision follows September's quarter point rate increase, which was the first under Fed Chair Kevin Warsh. The vote was tended to with Cleveland Fed President Beth Hammock and Fed Governor Lisa Cook dissenting in favor of another quarter point increase. The split is noteworthy because it highlights the ongoing debate within the committee over how aggressively the Fed should respond to persistent inflation. The Fed appears comfortable taking some time to evaluate the impact of the September rate increase before making its next move. The economic activity remains strong, labor market continues to demonstrate resilience, and inflation is still running above the Fed's 2% target. In fact, the committee even upgraded its description of economic activity from expanding at a solid pace to a strong pace. Warsh acknowledged that financial conditions have tightened somewhat since September, but stopped short of describing them as restrictive. The message is that monetary policy is beginning to work. But the Fed needs additional evidence before deciding whether further tightening is necessary. So moving to Warsh's press conference, I thought one of the most interesting aspects was his continued emphasis on evaluating economic conditions rather than signaling future rate decisions. He made it clear that he does not favor traditional forward guidance under normal economic conditions. That's a meaningful departure from the communication approach investors have become accustomed to under previous Fed leadership. He also emphasized that while economic growth is encouraging, inflation remains too high and restoring price stability continues to be the committee's primary focus. Another interesting observation was his discussion of capital allocation. He suggested that tighter financial conditions encourage investors and lenders to become selective where the capital is deployed. That's an important distinction. The Fed isn't necessarily trying to weaken the economy, but it is trying to restore price stability while allowing economic growth to continue. Another important note from his press conference was his comments regarding Fed meeting schedules. He announced a notable change to the structure beginning next year. The Fed will continue holding eight meetings annually, but in 2027, One of these meetings will be dedicated exclusively to broader monetary policy strategy. That means no scheduled interest rate vote or traditional policy statement is anticipated at that meeting. Also in 2028, WARSH expects two meetings of the eight to focus on strategy, leaving six regularly scheduled meetings for policy decisions. His reasoning is that the committee needs dedicated time to consider longer-term issues affecting monetary policy rather than focusing exclusively on near-term economic developments. I think this is an interesting change because it reflects WARSHA's broader effort to rethink how the Fed conducts and communicates monetary policy. So for financial markets, it means fewer regularly scheduled opportunities for rate decisions, making the remaining policy meetings potentially more consequential. All right, fast forwarding to what this all means for the December Fed meeting, it's really shaping up to be particularly important. September's projections indicated that policymakers anticipated another rate increase before year end, but Warsh was careful not to commit to that outcome. Instead, he emphasized that incoming economic information would determine the appropriate policy response. Inflation, labor market conditions, consumer spending and financial conditions will all continue to be important considerations. I wouldn't interpret October's pause as a signal that the Fed has finished raising rates. Rather, it suggests the committee wants to assess the effects of its previous action before determining whether another increase is warranted. So what does this mean for investors? Investors, the message remains one of patience and discipline. Short-term interest rates are likely to remain sensitive to incoming inflation data and changing expectations for Fed policy. With economic growth remaining resilient and inflation still elevated, the possibility of additional tightening cannot be dismissed. But at the same time, the Fed's willingness to pause suggests it recognizes the importance of allowing previous policy actions to work through the financial markets and broader economy. In this environment, maintaining liquidity, emphasizing credit quality, and managing interest rate exposure continue to remain important. So the bottom line is October was about more than simply holding rates steady. It reinforced three important messages. The economy remains resilient. Inflation is still the Fed's primary concern, and Kevin Warsh is changing how the Federal Reserve approaches monetary policy.

Brian Pietrangelo [00:09:56]

Great update. I thought it was very interesting with a couple of things. Number one, the meeting for 2027 that is going to be dedicated to strategy with no policy decision. And if I didn't listen to Kevin's speech closely, I would have thought that he would have meant that that would have been the first meeting of 2027 because it would have been an opportunity to think about what the five task forces are bringing to the table. But in reality, if you listen to it and you read the transcript, he says beginning next fall. So it might be a year from now where the November meeting is actually the one that they use as a strategy meeting. So we don't know whether that will be an issue that will create volatility in the market or not yet. So thanks for bringing that up. I also thought it was interesting in terms of The fact that Kevin talks about the fact that he doesn't like to give forward guidance doesn't do a dot in the dot plot, but at the same token, it's very interesting to me on the reaction function that he talks about all the time. Well, the market participants got it right. Without any forward guidance, market participants believed that there would be a hold at that particular meeting, and that's exactly what happened. So I'm trying to reconcile the fact that the market is getting it right. Maybe it had something to do with the midterm elections, maybe it did not. But ultimately, I think the market got it correct. The other thing that I thought was a little bit funny was that Kevin doesn't like two questions from the same speaker at the same time. So you certainly saw that. And I know you're laughing, Cindy, as I can see your face. So that's interesting. So Steve, any thoughts on that in your perspective from the Fed? And then we'll go back to you with some market moving events this week. The only thing that I'll add about the Fed is that I think that the market's just going to have to get used to dealing with more uncertainty surrounding the Fed meetings than what it has in the past. And what we know is that the market abhors uncertainty, right? So I think that we can look for more volatility around these Fed meetings in the future than what we've had over the last 10 or 15 years in the era of forward guidance. And it's just something that we're going to have to get used to. And I think it is going to take some getting used to. This week it happened during major earnings releases for some of the hyperscalers, and it was really not viewed as a quote unquote live meeting. So I don't think it really had all that much impact. But the bottom line for us on the equity side is that we should expect more volatility around Fed numbers as we go through the Kevin Warsh era.

Brian Pietrangelo [00:12:27]

Understood, Steve. So let's pivot back then to talk about earnings, somewhat of a volatile week this week. Let's talk about some specific companies and then earnings overall in general.

Steve Hoedt [00:12:37]

Yeah, it's been a pretty volatile week, especially when you look at the numbers that are coming out of the hyperscalers. What we've seen from companies like Google, Amazon, Meta, others, Oracle too, they're talking about just tremendous amounts of capital expenditure. And the investment community is finally getting to the point where they're questioning the returns that the companies are getting for those investments and potential investments. In some instances, such as Oracle, there were positive surprises because earnings came in better and guidance was better. And in others, like Alphabet/Google and Amazon, the market is kind of questioning what the companies are getting in terms of a return on the investment. So it's been a week where the earnings numbers have not necessarily helped the case for the market to break away to the upside here. And somewhat concerningly, we have seen the semiconductor stock work back toward the bottom end of their recent trading range. And I would tell you, I've been watching that like a hawk because that has been the key part of the AI trade over the last call it six to 12 months, that people have invested in the infrastructure angle on this in order to try to play it more so than betting on the hyperscalers, which was kind of like the way that they were playing it two years ago. And I think that it's not entirely clear right now that semis are going to reassert themselves here. It feels like the market is understanding that AI is a real thing, but they're also understanding that there are gating factors to how this is going to play out, whether it's you're not getting enough free cash to invest in the infrastructure or the debt markets are closed. I mean, we've all seen what's happened with CDS spreads and things like that for some of these neocloud companies like Coreweave and others. And it's making the market ask some questions. Those questions are uncomfortable. And it's been a difficult earnings season, no doubt. And I look at my screen this morning and I see the S&P 500 down almost one and a half percent, and it's being led largely by the semiconductors and the technology weakness in the AI space. So it's very clear that the market is evaluating what's going on here with more of a jaundiced eye than what it has in the past, Brian.

Brian Pietrangelo [00:15:22]

And the good news within the bad news is we started talking about this over 12 months ago, and we continue to talk about that concept of a possible pullback on this podcast. So our avid listeners have been hearing the same message from us. And now we've got a little bit of truth coming through this week. Steve, what about broader breadth in the market or other earnings outside of tech?

Steve Hoedt [00:15:44]

So it’s been, it's of been funny because the market has been wanting to see breadth improve and we got breadth improvement over the last couple of weeks, but it's been driven by a rotation into defensives. It's been driven by health care, consumer staples, utilities, and to a lesser degree, real estate. I'm in a camp that you want to see breadth improve. I would prefer to see breadth improve across the board instead of seeing it improve specifically by being driven by a rotation into defensives. If you look right now, there's a large percentage of the S&P 500 is in drawdown, meaning that it's down more or in the ballpark of about 20% or more. And that is a bit concerning to me. But again, the headline index has held up relatively well. So what we've got is we've got this rotation. You've got some things that are working. Theoretically, it should be a good environment for stock picking, but because of the kind of the concentration issues with the mega cap names and the fact that everybody's been in those names, It feels like it's been a lot more painful for the average investor than what it than what you would think when you've got things like the RSP, which is the ETF that tracks the equal weighted S&P 500 and moving to new highs as we've got the market churning.

Brian Pietrangelo [00:17:15]

So we have to talk about something next week, even though we tend not to want to talk politics on this call, but we do have the midterm election coming up. So Steve, let's finish the podcast with maybe your thoughts on some relevant outlook as what we typically see in a mid-year election period and what we might see relative to next week's votes.

Steve Hoedt [00:17:36]

Yeah, Brian, we never get into the blue team versus the red team stuff. And if you look historically, blue team or red team, that doesn't really matter to the market. The data that goes back to the 1940s, if you take the last 20 midterm elections, mark the date on your calendar when that election occurred, and then check the S&P 500's return 12 months later, Over the last 20 midterms, the average return has been 22% for the S&P 500 a year later. And that is a fact. And it doesn't matter whether it's blue team or red team. It's simply, in our view, a removal of uncertainty. The market understands what the landscape is for policy, all this kind of stuff, whether it's gridlock or not gridlock or whatever, and the market adjusts to it. unabashedly, you've had a positive return over the last a really long time. It could say 80 years. It goes back to 1940s. Now, I will tell you that over the last five midterm election cycles, that average return has only averaged 15%. So it does feel like the market has kind of downshifted from what it has historically been on on a really long term basis there. Maybe that has something to do with all the other kind of macro factors that we've been dealing with, whether it's the zero rate environment, COVID, all this other stuff. I can point to all kinds of things that that may have caused that downshift. But again, 15% is not is not a bear market. Right. So like I think when we think about how the market is likely going to react to whatever happens next Tuesday, just keep in mind that the removal of that uncertainty will have been removed. And while you may have a potentially negative market reaction or positive market reaction on the day after, that's not the point. The point is that uncertainties removed, the market understands how to adapt and adjust, and that if you look at that historical long term track record, the removal of uncertainty after the midterms has driven really solid market returns historically. So I think the part of this that's hard for me is that we're on track for a fourth consecutive positive year here after two years, three years, mind you, that we've had 20 plus percent market returns. I don't know if we're going to get there this year. We got two months left. And we're right around, I think, 13%, 14% right now in the S&P. Are we going to get another 20% this year? I don't know. And then if you throw that forecast out that I just used using those historical numbers, that would be five years essentially in a row of mid-teens numbers. That starts to get hard to see the market be able to do, right? Especially given that we've got, and George has talked about it too on these calls last week, you've got the earnings numbers that likely are in a phase where we're going to start to see some deceleration next year. So I don't know that we would skew as high as what those numbers suggest for 2027. But at the end of the day, we do have a positive bias here because it's really hard to ignore the fact that, yeah, earnings are going to decelerate, but they're still probably going to be in the low teens. And you've got this removal of uncertainty that's going to happen once we get kind of the policy backdrop that we all know what the rules of engagement are going to be for the next two years. So I think that we as we start to start to put together our outlook for 2027, it's positive, but with a few caveats.

Brian Pietrangelo [00:21:32]

Well, thank you for the conversation today, Steve and Cindy. We certainly 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 [00:22:08]

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

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

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

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

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

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

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

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

Non-Deposit products are:

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

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, October 23, 2026. I'm Brian Pietrangelo, and welcome to the podcast. I had the opportunity this past week to be in Rochester, New York, speaking at a conference held by Financial Executives International, and it was a great opportunity to meet with a number of business owners and have some great conversations about the markets and the economy. So let's do the same thing here on the podcast on Friday like we always do, and I'd like to introduce our panel of investing experts here to share their insights on this week's market activity and more. Steve Haight, 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. Also, we have our quarterly publication known as the Key Investment Perspectives, which was recently launched and has a great recap of what happened in the most recent third quarter of 2026. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, the economic release calendar was very light this week. We only have two updates for you and we will begin with pending home sales from the National Association of Realtors. For the month of September, pending home sales decreased by 7.3% month over month and 11.3% year over year. So pretty stalled here in the activity, but it's not a surprise given where mortgage rates are. The national average of mortgage rates around 7.4%, which we hadn't seen for the past three years going back to October 2023. And prior to that, we haven't seen mortgage rates at levels at this area since about 24 years ago back in March of 2002. So we'll continue to watch 30-year mortgage rates as it relates to 30-year yields and 10-year yields on the Treasury side, which are typically fairly correlated. So if we see any relief there, might be some relief in the activity. And second, the weekly initial unemployment claims report came out for 194,000 for the week ending October 17th, which again continues to remain extraordinarily stable and at this level around 200,000 for over 2 years now, which is again somewhat remarkable given what's going on in the employment market and a sign that is very favorable and stable, at least as that one indicator. And looking towards next week, we've got the Federal Open Market Committee meeting at the two-day meeting, which it always is, ending on Wednesday with the press conference and the news of the decision. And we'll talk with Rajeev specifically about that as we move into the panel discussion right now. So Steve, let's start off with you with your observations on the stock market today. The markets were up and down this week with some market activity around the tech sector. And we'll weave back to touch on Q3 earnings and some additional observations.

Steve Hoedt [00:03:16]

So Steve, what's your take this week? Brian, it was yet another interesting week and Rajeev will be happy because it does seem that credit markets have once again become the most important thing for equity market investors to pay attention to as if they weren't always right, Rajeev. But when you look at what's been going on, especially in the tech sector with hyperscalers and these neo cloud companies like Coreweave and things like this, Equity market price action this week has been dominated by what's been going on in credit. We had a really important earnings release a couple of evenings ago from Meta. And after hours you would have thought, hey, things were good because the stock was up 5% after hours, but it ended up going down a like amount the next day after people started to dig through some of the financial disclosures. And buried within there, they started to talk about what they were going to have to do in terms of capital raise to support this Muse consumer facing AI agent product that they've got. And basically, they discuss an open-ended commitment to raise capital via debt markets and equity markets, a combination of both. And I think that the market has also figured out that could mean that we could get a jumbo offering between now and the end of the year with $50 billion out of meta coming to the bond market on top of this new class C shares business that they're going to do in the first part of next year. I don't know that's a lot of minutia on one stock to kind of throw out at our audience, but it's very important because like the amount of capital necessary to support this AI stuff has become a real question mark over the last two or three weeks for the market. And credit markets are kind of in riot mode over having to finance all this now. And it seems like the market is trying to discern what's going to get financed and what's not going to get financed as opposed to maybe three to six months ago where everything was going to get financed in the equity markets view, right? So I think we've had this change in tenor and when you look at the performance of The NASDAQ 100, it's had one of the worst couple week periods during the course of the year. I looked at my Bloomberg terminal screen this morning and I see semiconductors making a new relative low for the last six months. I think that that's something that we need to pay attention to as we head into the back end of the year that we're not in the same environment for these AI plays that we were three months ago. Like the market is definitely understanding that it's gonna be more about the financing of this stuff now instead of just focusing on all the whiz bang stuff on the technology side. And we are in agreement that the AI stuff is real, right? The technology stuff is real. The financing of it is a problem. And that's why we've had kind of this back and forth business this week, Brian.

Brian Pietrangelo [00:06:46]

And Steve, talk about financing. How does it relate to earnings and specifically some of the earnings reports that came out this week?

Steve Hoedt [00:06:52]

So earnings have been okay. the market has continued to see the forward earnings line on the S&P 500 go higher. That's continued this week. We haven't seen anything downshift there. It does feel though that what we had talked about coming into the earnings season was that the earnings growth has been driven largely by a couple of companies, Nvidia and Micron, and that the market really needed to see earnings breadth improve, meaning that it wants to see industrials, materials, energy, financials, healthcare, consumer, all these other things contribute to earnings growth over the next 12 plus months. And I think that we continue to have a continue to be disappointed on that, quite frankly. Again, looking at my Bloomberg this morning, and I see the forward PE multiple for the S&P 500 trading at around 18 and a half. That is a, how many months low? 18 month low for the S&P 500 earnings multiple. That's not insignificant. Like it's really hard for the stock market to make significant headway when the multiple is compressing. And that's the environment that we're in today. We need to see breadth improve across multiple sectors in order for investors to start to pay a higher multiple for those earnings. And right now, I think that the market looks at some of this growth that's been driven by these hyperscalers that's accrued largely to the semiconductor complex. And the market just does not believe that those earnings should be paid for with a premium price.

Brian Pietrangelo [00:08:54]

Great, Steve. One final question for you before we get to Rajeev. I want to dive a little deeper on an article courtesy of the Wall Street Journal this week. And the comment was that Persian Gulf oil experts have surpassed pre-war levels And that was a little surprising, right? Because you think about the Strait of Hormuz being closed on the flow of oil. And let's reconcile maybe what that meant in terms of oil flow, because the price of oil still keeps climbing, especially this week. And that's a little counterintuitive. So why don't you give our listeners a little bit more of a deep understanding of what that is?

Steve Hoedt [00:09:29]

So we think that there's a couple of things at play here. First, everybody turned into a tanker tracker. when the war began, right? And if you look at those tanker tracking numbers, the trips in and out of the Gulf, they don't look any different than they have over the last few months. And they tell you that the flow of oil is shut off. But that's not telling you the whole story, because what's happening is that the Oil is getting out on shuttle tankers, which are small tankers that have the ability to go closer to the shoreline of Oman. They're coming out at night with transponders turned off under military escort. So they'll never show up in the official tanker tracking data that people see. Then those shuttle tankers offload their oil to supertankers in the Gulf of Oman, and then that oil moves to global markets. So when you combine that with things like the Yambu East-West pipeline and others, it is entirely possible that over a short period of time, the oil that had built up in storage in the Gulf region could result in there being higher export numbers than what we had had prior to the conflict. So markets are in the process of normalizing in terms of supply. But there's a couple things at work that are keeping prices high. First, places like China really drew down their strategic reserves during the crisis period earlier this year. They're rebuilding those reserves and they're price agnostic on what they're paying to rebuild it. It's a strategic decision. So they'll take flow and put it into storage. And the second thing is the market, I think, has a pretty good understanding that this conflict is not over and that it's likely to resume in three weeks once we get past the November midterm elections here in the US and we get the Israeli election out of the way within the next week. Those 2 things clear the board for a re-engagement of hostilities and the market is pricing in a not insignificant risk premium into the price of crude oil. I think you could easily get yourself to a back of the envelope calculation where you've got a $15 risk premium added to the current price of crude. I think if you were just looking at a rebuild of stocks, you'd probably be looking at a 90 to $95 price on oil instead of $110. So yeah, I think we're in an environment where this is going to remain high for a protracted period of time, especially if we get a re-engagement of hostilities, Brian.

Brian Pietrangelo [00:12:27]

Thank you, Steve. Great to go beyond the headlines and go deep on that. I know our listeners do appreciate it. So let's transition to Rajeev to get some more commentary. Maybe you can segue with Steve's comments on credit, Rajeev, but ultimately what's going on in the bond market this week. And then we talk about 10-year yields below 5, which is a nice sign.

Rajeev Sharma [00:12:45]

Absolutely, Brian. I mean, it was a volatile week, if you want to put it that way, for the bond markets. But ultimately, it did turn into a strong performance for the rates market, as Steve pointed out. And that does keep us bond investors happy for a change. Namely, U.S. Treasuries, they posted their strongest weekly performance in months. Thursday saw the real dramatic flight to quality, and that's what really caused the surge for Treasuries. And the risk-off sentiment was felt throughout the markets, namely the credit markets, as well as Steve pointed out, that there was a real run for high quality corporate bonds. There was a real run for duration. There was a real run for the rates market. All tenors of the treasury market rallied on the week. We're talking about weekly changes in the double digits. We saw the two-year treasury note yield down 11 basis points to 4.6%. And as you mentioned, Brian, the 10-year finally came below 5%. We saw moves 18 basis points for the week on the 10-year and yield moves lower. So we got to 4.9%. And getting right below that 5%, I think, was very important for the markets. We've been hovering above that for weeks. And we haven't seen a lot of buyers step in. In fact, we had treasury supply come to market. Again, not a lot of buyers getting excited because they don't know exactly how high rates were going to go. But then when you start thinking about safety haven assets, you start thinking about treasuries. And that's exactly what happened. The curve steepened on the week. We saw the long end outperformed. We're seeing a partial reversal as oil prices continue to rise, as we've just talked about. So as long as oil stays high, that continues to be an inflation story for the markets. So you have to keep that in mind as well. But really the defining moment for the treasury surge was related to the sharp sell off that we saw in AI and technology stocks. That sent investors straight to the safety haven nature of treasuries. And again, as we mentioned, the 10 year was back below 5% for the first time in one month. Now, despite the Treasury rally, credit spreads did move in an opposite direction, but depending on what corporate bonds you're involved in. The risk off sentiment led investors more towards high quality credit. So investment grade credit spreads did widen, but only widened by about 3 basis points and high yield spreads widened by about 6 basis points. But that was not enough to really dent the performance that we saw in the overall bond market. The aggregate bond index, which is the best proxy for the bond market, was up over a percent for the week. And now there remains, there are still those concerns in the market and why you're still going to get the safety haven play, why you have this, first of all, you have oil topping $115 per barrel. So there is the disruption fears there. That stokes inflation concerns and that too just days before the Fed's October 28th FOMC meeting. And right now the Fed is, Fed members are in a blackout phase. So you're not hearing from any Fed members right now either. So some may think that's a good thing, some may think that's a bad thing, but right now you're not getting any indication from the Fed. But overall, the market is not anticipating the Fed to do anything next week. They expect to pause, they expect the Fed to leave things unchanged. And then in December, right now the odds are in December we'll get another rate hike of 25 basis points. Now, another factor that was in the market was the heavy supply that we saw early in the week. We saw multi-tranche corporate bond deals from issuers. They wanted to lock in rates early in the week. And still right now, if you think about October new issuance of corporate bonds, we are on pace to fall below syndicate desk estimates. And I think that's very good because when you don't have the supply that's anticipated, you start seeing spreads have some support in the corporate bond market. But there are a lot of reasons for why investors should start feeling I need safety haven in my portfolio. You have the French fiscal crisis that adds some cross Atlantic volatility. Moody's is reviewing France's AA3 negative outlook today on the French sovereign debt. That could have a rating action as soon as today. Again, that adds to a flight to quality sentiment in the market. So this week we did see the rally, albeit it was an uneven one. We saw treasuries and high-grade bonds benefiting from the safety haven play, and we saw lower quality, high yield bonds that were left behind. Financing remains a very main pressure on the entire AI complex, as we've talked about here. And I think right now, if you're a bond investor and you're looking at the AI complex and you're thinking where to put money in those corporate bonds, you are looking at free cash flow. And that's going to be the big differentiator for all those AI names that we see that are planning to come to market with jumbo deals for AI capex. So you're going to start looking at what their free cash flow picture looks like. That's what I think investors should focus on. Now, we do expect more volatility next week. Obviously, we have the Fed meeting next week. We have the press conference from Kevin Walsh right after the statement's released. That's where we'll get some more indication of how the inflation story is playing out in the minds of the Fed members. But I do think, again, pause for next week, volatility at the press conference when Fed Chair Walsh starts giving us plans about how deep this rate hiking cycle could be.

Steve Hoedt [00:18:01]

Rajeev, it really caught my attention this week that for pretty much the first time in feels like recorded history, we saw French bonds trade at a negative spread to Italian bonds.

Rajeev Sharma [00:18:14]

Yeah, that was pretty impressive.

Steve Hoedt [00:18:16]

Think about what that means, right? I mean, you've got, I remember back in the early 2010s and And we had the moniker for the pigs countries, right? Portugal, Italy, Greece, and Spain. And they were viewed widely as like the worst possible sovereign credits in Europe. And now you've got France, which is one of the two core European countries along with Germany, trading at a wider spread to treasuries than you've got Italian bonds at. I just think it's a fascinating market dynamic right now over there.

Rajeev Sharma [00:18:49]

It is incredible. And you think about France and many people try to extrapolate that to the US and say, okay, they have a debt problem. We have a debt problem, but we have economic growth that they're not seeing. And we also have the fact that we can print our way as much as we can and they can't do that either. So that's kind of really showing its impact on the differentiator between French Treasury notes and our US Treasuries.

Brian Pietrangelo [00:19:14]

One final question for you, Rajeev, going back to the US on the Fed, Last month's vote was 12 to 0 unanimous to raise rates by 25 basis points. I know there's a little bit of a dissension here. What we do is a pause for this meeting. You think it'll be 12 and 0 or you think it'd be something else?

Rajeev Sharma [00:19:31]

I think you're going to see some dissents on this one because I do think that there are Fed members there that feel that we should not take our foot off the pedal. There were some Fed members in the FOMC minutes that we got from the last Fed meeting that wanted a 50 basis point rate hike. So you're going to see probably not as much unanimous voting that we saw last time.

Steve Hoedt [00:19:51]

If they actually move, though, like the market is not pricing that at all. Like it would be almost unprecedented for them to move in an environment where we walked into a meeting and the market was only pricing a 25% probability. I mean, it has the potential to induce chaos, does it not?

Rajeev Sharma [00:20:09]

It really does. The market's not anticipating it. But if you just think about 3 weeks ago, the market had a 70% odds that there would be a rate hike and that all went away. So you're right. If they do hike next week, it would cause chaos. And another factor is that rates were moving in a direction where the Fed would feel like, okay, there is already tightening that's happening in the market. Now we see this big reversal this week, below 5%. Does that change any opinions out there?

Brian Pietrangelo [00:20:37]

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

Disclosure [00:21:13]

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

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

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

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

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

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

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

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

Non-Deposit products are:

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

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, October 16th, 2026. I'm Brian Peterangelo and welcome to the podcast. This past week I had an opportunity to be with a few clients as well as a number of meetings with our colleagues as we continue to serve and try to figure out ideas of how we can help our clients navigate the markets and the economy. So quick shout out to my colleagues for the meeting this week. With that, I'd like to introduce our panel of investing experts here to share their insights on this week's market activity and more.

George Mateo, Chief Investment Officer Steve Hoedt, Head of Equities and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got four key economic releases for you this week and we will begin first with the existing home sales report from the National Association of Realtors, which showed that there was a 1.5% increase in existing home sales for the month of September.

Now this follows 2 negative months in the prior two months, but overall it's been a little bit choppy for the last couple years in addition to the fact that yields continue to correlate with mortgage rates rising, which again has the ability to stifle a little bit of the existing home sales report and activity. And second, earlier this week on Wednesday, we received the Federal Reserve's Beige Book report, which comes out two weeks in advance of the upcoming Federal Reserve meeting. That is a two-day meeting on October 27th and 28th. The report provides an economic update for the activity in the 12 districts of the Federal Reserve across the country, and the summary for the period since the last Fed meeting talks about two of the 12 federal districts reported moderate growth, three reported modest growth, four reported slight growth, and three reported no significant change.

So albeit on the side of positivity, That was fairly decent relative to the activity we've been seeing in the 12 Federal Reserve districts. As far as consumer spending goes across the districts, most saw that there was little to no change in activity from the prior period, however, did make the observation that that spending has been accumulating by high income earners. Lastly, with regard to the labor markets, there was a pretty consistent no change in economic activity on the labor side of the market across most, if not all, of the districts. And speaking of consumer spending, third this week we got the update for the advanced retail sales report for the month of September and it was a positive 0.8%.

which follows August report, which was up 1.3%. So some pretty strong consecutive numbers over these past two months in terms of the consumer spending engine. And again, as we report this to you every month, I always remind everybody that this number is a nominal number, which does include both volume increases and price increases. So a little bit of the inflationary tale of paying more at the pump and elsewhere does contribute to this higher number. But we also talk about the consumer spending engine as consumers continue to spend. As a specific example for that, if you take the report excluding gasoline at gas stations, the monthly update was only an increase of 0.2%.

So a little bit softer, again exemplifying the increase that we're paying at the pump. So we'll continue to watch this going forward in terms of a key indicator of consumer spending engine in the United States. And finally, or 4th for the week, the biggest news item on an economic scale was the CPI inflation report, also PPI in terms of producer price index. We got both reports this week and they were both hotter than expected. And from the CPI Consumer Price Index inflation measurement for the month of September, the all items number was 0.6% for the month, which was fairly high, in fact significantly high. If you take core excluding food and energy prices, it was only 0.3%, but still elevated for the month, well above where the number needs to be to get this materially down towards the Fed's goal of 2% year over year.

And speaking of the year over year numbers for the report ending September, again, all items up 3.7% year over year, excluding core up 2.6% year over year. Again, going in the wrong direction in terms of our help to try and get the inflation numbers down to the Fed's 2% goal. We've got a long way to go, folks. Now looking inside the report, we make 2 observations. One on shelter, which we continue to report has been declining in a good way on a year-over-year basis each month. But for September, the CPI inflation year-over-year for shelter went up from 3.0% last month to 3.2% this month, so increasing some of the rental and overall home equivalent pricing.

And that's really important because shelter is one of the largest components of CPI, so again, going in the wrong direction. And finally, one additional category or subcategory, I should say, was interesting in terms of sporting goods and recreational hobbies. One was up 0.4% in the month, the other up 3.5% in the month, which is a pretty significant increase. Not so sure if that's camping materials or not, but it has been somewhat of an inflationary pain in the rear view mirror for the last few years with inflation in general as we continue to talk about this as a major topic within the economy. So with all that, let's get right to George to get his reaction on the economic data and a conversation with George and Rajiv about what that might mean for the Fed and also with Steve on what's going on in the stock market and earnings.

So George, let's start with you.

George Mateyo [00:06:14]

Well, Brian, I think the inflation numbers were certainly attention grabbing this week. And suffice to say, inflation still is an issue, a major issue for the markets to contend with. We've been arguing for quite some time now that we're in this old normal where inflation is stickier, interest rates are likely to be a bit higher as a result of that. And it's just taking much more time than expected to try and get both of those things back to what people would probably feel more comfortable with. But I think it is still fair to say that this is a regime that we've been in for quite some time. It's likely to persist.

It doesn't mean, again, that inflation is likely to spiral back to 7% or 8% or 9%, hopefully, but it does mean inflation's gonna be somewhat stickier. The numbers, as you mentioned, were pretty broad-based and across the board. It was not just confined to the energy sector, although certainly that was the big house for the jump in prices last month. I think it's often kind of interesting to think that I think AI is somewhat artificial intelligence is somewhat of a factor in pushing up the inflation numbers. You can kind of see that in certain components. And we've talked a lot about this on this call as well, where AI at the buildout stage anyway, is likely to be inflationary before it can become something more disinflationary later.

But for now, it certainly has pushed up inflation that's again causing rates to move higher. And when interests move higher, we start to see this week actually some stress in the overall credit markets and also the capital markets as it relates to AI companies that are dependent upon interest rates. That's really kind of a cost of their capital going higher, which actually kind of makes their business probably more difficult to actually achieve. So it's interesting that we've had this kind of moment where I want us in a circular way, AI is pushing up inflation, inflation pushes up interest rates. Interest rates kind of causes those companies to suffer a little bit.

And now we actually saw some of those stocks come down. The broader market seems to kind of like that because the market suggests maybe forward-looking on a forward-looking basis rather, that maybe we actually see inflation come back down again if the build out of AI is probably less inflationary, if you will, than previously expected. So it's an interesting kind of moment. This market's been a pretty wild market this week, I think, Steve, and we've seen moves up and down in different directions. it relates to the same companies, the same themes. I'm curious to know how you're thinking about this. I'm curious to know if we think that the AI trade is entering perhaps a new phase and how do you think we should probably be positioned going forward if so?

Steve Hoedt [00:08:37]

Well, I think to your point, George, it clearly is entering a new phase because the market to us this week has a bit of a different feel. Very clearly, the semiconductor stocks have come off the boil. We're perched just above the July lows both on a relative and absolute basis compared for the semiconductor index, the SOX, relative to the market. And it's been largely on the back of a stock that our listeners probably haven't heard much about, which is Core Weave. This is one of these neo cloud companies that is a large customer of Nvidia and other semiconductor manufacturers to provide cloud services to these AI companies. And CoreWeave has had to use debt and a whole bunch of other financing in order to try to put their business model together.

It's been dubious to a number of market participants for a while how this company was ever going to figure out how to make money, right? I think like everything else with this AI build out, it's been kind of the not to throw back again to our nineties or eighties movies kind of references from the last couple of weeks. But, you know, this goes back to Field of Dreams. If you build it, they will come. Right. And like if you look here at what's going on with Coreweave, you've seen their CDs credit default swaps blow out this week to new all time highs. And the market has really taken notice of this.

And I think that the fear right now is that it could spiral and pull in some of these, pull in some of the other companies, because if you look at who is the largest customer for one of the largest customers for Nvidia is Coreweave. And they've provided a bunch of vendor financing for them to be able to put some of their infrastructure in place. And with the CDS blowing out, it's very clear that the open market is not going to be very amenable of financing core weave from here. So that means

Nvidia itself going to have to step in and quote unquote bail them out. I think Jensen has been public and saying that they are, you know, kind of alluding to the idea that they're not going to have to do that. But like, I don't know that that's the case. And if you've got Nvidia stepping up to potentially bail out Coreweave, I think that that's going to make people a lot of people go and start to think about where this goes. And like, that's why you've seen the market week this week. If you look at The NASDAQ 100 index, it's pulled off materially on a relative basis compared to the S&P 500. As I mentioned earlier, semiconductor stocks have been heavy. I look at my screen today, some of the worst performers are these memory and AI levered names that have performed so well year to date. I'm not telling you that it's over here, but I think it gets more difficult here. That seems to be very, very sure.

George Mateyo [00:11:59]

Yeah, we've argued, I think, as early maybe as sometime about a year ago that the AI trade itself had actually kind of taken on a new direction in the sense that many companies that were, again, responsible for the build out of this had actually seen their CapEx exceed their borrowing basically, or maybe the other way, their cash flow rather. So in other words, they've actually been dependent upon more on borrowing and other things to try and finance the CapEx. And that was not a It wasn't meant to be a good or bad statement, but it just meant it's changing. And as you pointed out, when you have actually this extended nature of internal financing, vendor financing, or circular financing, we've also talked about it does become problematic if things slow. And indeed, Steve, I was kind of curious to see and get your take on the news that Anthropic and AI, OpenAI rather, the two big poster children of this AI revolution.

also suggested that maybe adoption is becoming a little bit more problematic. It's still growing, to be clear, but maybe less so than people expected. And what was it? The numbers came in, what, $20 billion worth short on the revenue? Yeah, what's a billion here or a billionaire? And the thing that really is

Steve Hoedt [00:13:12]

going to be curious about this is right. We've got both of these companies trying to get IPOs out the door. And when you've got numbers that are causing people to know, I think start to look, I think that AI is here to stay. Right. And I think we both are in agreement on that. But that at the end of the day, it's it's never clear when you get these these revolutions who the winners on a long-term basis are going to be multiple years down the road. And very often, the ones that are at the forefront at the beginning are not the longer term. And I think that's where we sit with a name like Anthropic or a name like OpenAI today, because you look at it and it's like, man, they're spending a lot of money here. And the revenues are not what people had expected at this point in time. And it makes you question

what the business model is. Like if you look at the token pricing, token pricing has collapsed, George. Like we can stare at token prices on Bloomberg and that is as straight a downtrend as what you would ever want to see. And that's not what these companies wanted to have happen when they're going through the process of trying to convince investors to pony up cash for an IPO. So it's going to be

George Mateyo [00:14:36]

It's going to be an interesting couple of months, that's for sure, to see if they can get that paper out the door. Indeed, it will. So, Rajiv, I guess if we sit up late last night to listen to Venture Kevin Wersch, we probably would have been disappointed because I don't think he said too much. But he did suggest that maybe he's a believer anyway of the productivity boom associated with AI. I mean, that was I think one of the readouts that I saw this morning, at least. And to Steve's point, I think we are probably constructive on a long-term basis that AI can be very

beneficial to our economy. We've talked a lot about some of these short-term headwinds that we're facing that now seem to be increasing a little bit. But Rajeev, if you think about this as you think about the Fed, you think about credit markets, and Steve mentioned, how does AI factor into your thoughts about positioning portfolios and thinking about your future outlook for markets and rates more specifically? Well, we finally, you know, George, with all the AI news out there and some of the topics that Steve talked about with Coreweave

Rajeev Sharma [00:15:35]

We finally saw a strong week for U.S. Treasuries this week. In fact, we are on track for the best performance for Treasuries since mid-February. It's been a long time since we've seen a one-way direction for Treasury yields moving higher. But with the news on AI and the news about some of the jitters in the market because of Coreweave, we did see investors start to step into Treasuries in a meaningful way. The yield curve steepened meaningfully, the long end leading the rally. Specifically, we saw the 30-year dropped about 14 basis points during the week. The two year only dropped around yields of only dropped around two basis points. So this again reflected that safety haven play for treasuries over a shift in near term Fed policy expectations. So what's really driving the move right now are these topics about AI. It's the safety haven play was a key theme in the week for the bond market. AI related equity saw a sell off earlier in the week and that really drove investors into duration.

Now, this is even in the face of the hotter than expected CPI and PPI prints that we saw, as well as strong retail sales numbers. So you would expect with those kind of prints coming out, you would expect yields to move further higher. But inflation concerns did take a backseat this week, and we did see other pockets of fixed income really start to outperform as well. We saw municipal bonds, they saw their 10-year meaning yields fall by 32 basis points in one week. to 3.8%. In fact, Thursday was the largest single day drop since April 2025 for munis and muni yields. And the muni treasury ratio also tightened to about 74%. So there's some movement in the markets of fixed income. But if I could go back to the hotter than expected CPI print, what the print really did do is shift some of these rate hike expectations for the October 28th FOMC meeting.

These expectations for what the Fed's gonna do at that meeting are pretty much, in my opinion, all over the place. They've been that way for a while. Two weeks ago, the market was putting 70% odds that we will have a rate hike in October. Those odds dropped to 17% last week. Then with the CPI print, those odds went back up to 30% and today we're back down to 17%. So the base case for the October FOMC meeting is a hold for the Fed. December right now looks like a near certain for a 25 basis point rate hike with odds hovering around 90%. And right now the market is looking at another 50 basis points of further tightening through the mid part of 2027. So you mentioned it about Warsh. I mean, the Fed enters this media blackout period every time right before their FOMC meetings. So the blackout period starts on October 17th. That means that the Fed members cannot be going out to the media and making public statements.

Before that, we did quite a bit of Fed speak leading up to this blackout date. We had Richmond's Fed Bargain calling that the CPI print was higher than he would have hoped for, but he needed more data to make a hike decision. You had San Francisco's Daily come out and say that rate hikes are needed, but maybe not immediately. And then, as you mentioned, George, we had Fed Chair Warsh here at the IMF annual meeting. And Warsh stayed pretty true to his aversion of forward guidance. He really made no comments on near-term policy outlooks. Besides sticking to the message that the Fed will deliver on price stability, his silence on policy was actually taken as a signal by the market. And that's what dropped rate hike expectations even further for the October meeting because it didn't seem like he was being hawkish. But the bulk of his messaging, to your point, George, was around AI and productivity.

Walsh did call AI a huge benefit to the US economy over the horizon. And again, that may have tempered some of the market fears that we're going to have a deep rate hiking cycle and the Fed's going to really start to aggressively raise rates because he really is a proponent for AI and what the benefit could be for the economy. Now, how all of this impacted credit spreads. If you look at overall investment grade high yield spreads, there wasn't really much movement. Investment grade spreads were marginally wider, practically unchanged, High yield was marginally tighter, again, practically unchanged. Spreads have pretty much decoupled themselves from rate volatility. What we did see, however, was that for investment grade companies that were supposed to come to market this week and issue new bonds, they decided to step aside given the CPI print. So the new issue volumes were lower than syndicate estimates had expected.

And in fact, this is the third week in a row where the syndicate desks have missed the mark on how much new issuance we're going to get for the investment grade market, which again provides some stability to spreads and keeps them tighter in this tighter range pattern that we've seen ourselves in. Now, if you look under the hood, however, we have to talk about the AI companies within investment grade and high yield. And obviously the week's dominant credit story was Core Weave. Those bonds collapsed into distressed territory. It did trigger bond. It did trigger some broader anxiety about AI related financing. But the contagion to the large cap investment grade AI names, that was pretty limited. CDS, to Steve's point, we saw almost a 75 basis point move intraday hit an all time high for Core Weave CDS.

But even their unsecured bonds that are long bonds, these bonds, they cross the distressed territory around Wednesday. And you're talking bond yields for this name of greater than 15%. But it has not really caused a huge contagion into investment grade, into the investment grade landscape. The remarks pretty much, you know, kind of started talking about AI CapEx sustainability. But an interesting point that I had read earlier in the week that if you do see a slowdown in AI CapEx, that could signal the market something completely different and you could start losing some faith in these companies that how come they're not really building out the way they thought they would. So right now, whatever AI forecast we've seen from some of these larger AI, large cap AI names out there, they haven't really revamped or rescheduled what their CapEx expectations are going to be going forward. And we do expect more bond deals to come in this space into 2027.

Brian Pietrangelo [00:21:48]

Steve, before we close the podcast, we'd be remiss if we didn't get your take on Q3 earnings now that we're two weeks into it. Hey, you know, it's been interesting to watch, Brian, because we have seen

Steve Hoedt [00:21:59]

estimates continue to creep higher as we've gone through earnings season, but we certainly have not seen any step functions so far. When you look at the vast majority of the earnings growth for the 500 this year, it's crazy to say it, but it's been driven by two companies. It's been driven by Micron Technologies and Nvidia. We're really going to have to see how the numbers come in for those two companies when they report in order to get a gauge for where this number is going to go. I would say a couple of points though. Bank earnings did not come out and blow the street away. Higher rates are having a bite on things.

The commentary regarding the health of the consumer was relatively constructive there, but there was nothing in the bank earnings that caused the market to revalue higher. And when you look at what we've been talking about lately has been this relentless downtrend in the PE multiple for the S&P 500. We've seen nothing so far in earnings season that would argue that we're seeing a broadening out of earnings away from Nvidia and Micron being the dominant feature. And our perspective really is that if we start to get some kind of a broadening, Then we could see the multiple start to expand on the growing earnings number that we've had over the course of this year instead of contract.

But right now we're actually trading with an 18 handle on the PE multiple for the first time since the significant sell off last March. And it's something that we continue to watch with great focus because what happens with that multiple is really going to tell the tale from here because it seems like the Earnings numbers are baked in the cake that they're going to continue to move higher here because of what's happening with the key drivers behind that. The multiple is going to tell the tale for the rest of 2026.

Brian Pietrangelo [00:23:58]

Well, thank you for the conversation today, George, Steve, and Rajiv. 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. 

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