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 21st, 2025. I'm Brian Pietrangelo and welcome to the podcast. And before we begin today's podcast, we certainly want to wish everybody a Happy Thanksgiving next week.

In fact, we will be off on the Friday after Thanksgiving to celebrate the holidays, so we won't have the podcast next week. We'll catch up with you in a couple of weeks. But again, wishing everybody a Happy Thanksgiving with friends and family. Also on the other side of the Thanksgiving week coming up on December 3rd, we are having our national client call with the Chief Investment Office here at Key Wealth to forecast our 2026 market and economic outlook. You should be receiving an invite if you are a client. If you're not a client, you want to reach out to somebody, a key or your relationship manager to get an invite, please do, so that you can sign up for the webcast. Again, it is on Wednesday, December 3rd at 1 p.m. Eastern Standard Time. I hope you can join us.

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, Stephen Hoedt, Head of equities, and Rajeev Sharma, Head a 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 which addresses 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 updates for you this morning. First, even though there continues to be a delay in a number of reports from the government shutdown, we're beginning to get some of the data. So first, outside of the government report, is the existing home sales produced by the National Association of Realtors. On a month over month basis, this number increased 1.2% in the month of October, which has been the highest since February and is at a 4.1 million annual rate. Now, this is the second month in a row where that has increased, so a little bit of movement here, unlocking some of the fragility in the overall housing market with regard to turnover and existing home sales activity. So good sign there in terms of two months.

And second, we have two updates on the labor market because some reports that had previously been delayed are now starting to come out. We'll begin with the initial unemployment claims report that comes out on a weekly basis, and most recent for the ending of the week on November 15th. That number came out at 220,000 initial claims. We also saw backdated reports for the two previous weeks, which hovered around 230,000. So the good news here, folks, is that even though we were in the dark for a while, those two reports show us that around 222 average of those last three weeks of initial unemployment claims is very favorable, because it shows that there is not an existing increase in the initial claims report. So good news there on that jobs report. In addition, the government came out Bureau of Labor Statistics with the employment situation report for the month of September, which have been delayed significantly. So we just got it yesterday, and it showed 119,000 new non-farm payrolls that were created in the month of September. The report also showed some revisions for July and August at 33,000 lower, but net net that average of 119,000 was well above expectations and estimates in the market. And we'll take it as a very positive surprise of the healthiness of the jobs market at least for now in this indicator. Now, the Bureau of Labor Statistics also talk that they will not publish the October report, which means this is the last new nonfarm payrolls report we will have before the December 10th Federal Open Market Committee meeting.

And number three, speaking of the Federal Open Market Committee meeting, we got the notes from the October 29th meeting and they called the minutes. So ultimately, it describes some of the dissension that was discussed in the press conference and talked about more so, differing opinions from the participants on the committee with regard to holding rates steady in December, or looking for rate cuts based on the fog in the data that is now starting to come out a little bit more clear and forth.

Finally, in the market, we had a number of very large companies report their earnings this week, which seemed to be favorable, but yet the market had a little bit of a negative reaction to it. So we'll get Steve's take on that to help us read through those tea leaves. And finally, as a special program later on in our podcast, we'll be have a conversation around how we did with our forecast for 2025 that we published at the end of 2024. Just like we're going to be doing with this now in our 2026 forecast here at the same time of the year. So, George, let's tee you up for the first part of the conversation with your reaction to a lot of this data and what's happening in the markets and the economy. George.

George Mateyo [00:05:26] Well, Brian, I think the overall takeaway from the economic numbers that came out this week is that, frankly, there were some contradictory, numbers. And also I think the numbers were pretty stale. So more specifically, I think the thing that the market really kind of paid most attention to, of course, was the, the jobs numbers that came out for September. So again, those are probably two months old now, and I'll talk more about that a second. But the numbers were kind of mixed, frankly.

I mean, I think we saw some indications that the overall employment situation was a bit better than expected, in the sense that roughly 120,000 jobs were created in the month of September. I think that's say, there might be the highest tally since April. So that's a nice recovery there. The the prior two months, however, saw their numbers revised downward. So those would be August July numbers. So again we're kind of going back a little bit further. At the same time, the unemployment rate as you mentioned actually moves higher, almost close to 4.5%, which would probably be noteworthy. Then I guess you can kind of parse that number. So that was a good number of that number. But I think most people are going to focus on the fact that that number is still rising. So what that means is that the market is kind of appreciated.

We also saw wages come a bit soft as well. That's really good news for the inflation story. I think wages now are kind of running at about a 3.8 or so percent clip on a year over year basis, which is kind of kind of a comfort zone for the Fed. Not too hot, not too cold. I think they'd probably prefer to be a little bit softer. But, you know, America split here on that one. And I think you also just kind of know where they go. And if you think about the job numbers, the three month average now is ten. Moved up a little bit. Which is probably good news as well.

I think if you also kind of think about the numbers going forward, however, you know, some of the numbers this, this path report again, this is going back for September data, but, but the prior report suggested that most of the gains came in the private sector, which is pretty typical. But then note the note. I bring that to your attention in the sense that I think the government data, it's going to probably be a bit softer.

Many people are kind of bracing themselves for a pretty weak report when the actual October numbers come out, sometime. And I think it's going to be sometime after the Fed meets. So again, the Fed is meeting in kind of the first part of December, I think it's, December 9th and 10^th, and then at the same time, that employment report that I just mentioned will come up for a week or so after that. So, again, we're kind of in a situation where the numbers are still, things are confusing. And overall, I think things are still a little bit foggy in terms of what they might mean for the overall economy.

So let's, maybe let's shift gears a little bit. I think the bigger story in terms of this week has to do with what happened in the stock market and the stock market. Call this news in kind of a, kind of interesting fashion, I guess you could say a lot of volatility in the equity market. What do you take away from this week when you can think about earnings? And we think, what if the set up for the rest of the year is.

Stephen Hoedt [00:08:04] Well George, I mean it's I can't couch the price action in anything other than to say yesterday was probably one of the ugliest days that we've had since the turn of the decade. If you look at it, I mean technicians would look at what we had yesterday and call it an outside day, which mean we opened very high to the upside and then closed, very, very much on the downside. And it completely engulfed the days- the prior days’ range. The last time that we had an outside day, similar to what we saw yesterday in the Nasdaq according to, you know, sources that we trust was October of 2018.

So like it has been a really long time since we've seen that kind of reaction. And what was a bit shocking about it was that the numbers out of Nvidia were good enough. I mean, we got to open to the upside, but yet, we just continuously faded the entire day from that. So it kind of tells you that, the, the market, you know, we've talked for a while that things have been a little bit overcooked on the upside. And like, what could the market do in order to exceed expectations here? And even though Nvidia exceeded expectations, it clearly wasn't enough to keep the party going, at least for today.

Now, the positives from this are that when you look at the technology stocks in particular, we have gotten to areas that the market would consider oversold. So we should be getting close to an area where tech stocks are going to bounce. But if you look at the broader S&P 500, things like 20 day lows, like we like to see those spike above 50% in order to kind of give us an idea that the market is in a place where we're bottoming, and those are only around 25% as of last night.

So it seems like the broader market has a little bit more work to do here to try to find a low, and wouldn't surprise me if tech, did did. So first. I think a more interesting piece here too, is to put this in a little bit broader context. If you remember, we talked very much about the seasonal pattern that the market usually has where we have weak Septembers in October and then strong November and December.

It would not shock me at all right now, given how we had a strong counter seasonal in September and October, where we rallied strongly that we don't have the opposite happen in November and December this year, where we kind of back and fill and chop and make mark time between now and the end of the year. I don't know that we get a face ripping rally between now and the end of the year.

Like we would normally kind of see a Santa Claus rally, that kind of stuff. It feels to me like this market needs to do a little bit of digestion for the gains. Again, I don't see anything nefarious, unfolding here, but. And a pullback from here that goes down and say, tested the rolling 65 day low or even the 200 day moving average around 6300 would not at all surprise me, to be honest.

George Mateyo [00:11:08] Well, at the same time, Rajeev, you know, this confusion around the devaluation of AI stocks and the overall market sentiment. But he pointed to I think he's after colliding with what the Fed is kind of talking about. And the Fed is not talking. Well, you know, by voice, I mean, there's a lot of different people out there that are chattering, expressing different point of view.

And as we come into the, the meeting right after the holiday, Thanksgiving holiday, of course, you know, the Fed's going to meet and I'm not sure exactly what were the leaning, because we've got so many different opinions that are now being kind of penny back and forth. Are you going to sort through that maze, that fog in terms of Fed speak and what they might be thinking about when they come together in early December?

Rajeev Sharma [00:11:46] Yeah. So, George, I mean, the fixed income markets are they're really looking for any cues they can possibly get for whether we're going to get a pause in December at the December 10th FOMC meeting or whether the Fed will continue cutting rates. Generally, if you think about what the Fed has done in the past, generally they don't cut and pause or they don't hike and pause either.

But right now, this is a very different situation where we don't have the data and the Fed doesn't have the data to really make the decision. So we did have the release of the October FOMC minutes this week. And the market really, you know, got what they wanted in that meeting. Obviously they got the 25 basis point rate cut. But the minutes showed quite a bit of a divergence amongst Fed members. Many members in the minutes signaled caution. They were a little worried about continued easing. They pointed to towards, stubborn inflation, continued uncertainty around the labor markets. All in all, the committee approved the 25 basis point rate cut, but they were pretty split over the rationale of why have a rate cut.

And, when we had the, statement released in the October meeting, we only saw two dissenters, Miran and Schmidt, and they were on opposite sides of the poll. But if you read the minutes, you really see a lot more dissension. I think a lot of policymakers have been arguing that we shouldn't have any more further rate cuts, because we don't have the data to support it. Meanwhile, you have other members that, feel that, you know, we have to continue cutting rates. And then the economy, if the economy evolves as expected, then it should be, you know, we should be cutting rates. So now the expectations for a December rate cut, have fell pretty dramatically since the October FMC meeting.

When we finished the October FMC meeting, we had 22 basis points of easing priced in. Everybody thought that we're going to get the December rate cut. And, just this week we had about maybe nine basis points of, rate cut expectations for the December meeting. So basically, the market was pointing towards a pause. Then we got the stale data that you mentioned about the payroll information, and it really didn't move the needle at all because as you mentioned, George: stale data is not enough to go by. But I want to point out how quickly the market can react to a Fed member or a Fed speaker or anybody coming up with a narrative that contradicts where the market is expecting.

Today we saw Williams, Fed Member Williams come out and pretty much said that he sees a need for rate cuts in the near term. The labor market, he feels, is softening. And it feels that, rate cuts should happen. And immediately, based on those comments just this morning, those expectations of a rate cut in December went from 36% to 58%. So again, that's how volatile this market is. We've seen it in volatility indexes for the bond market that there's a lot of question marks right now of what the Fed's going to do in December.

And I think when you have the Fed narrative and the divergence that we've seen through the minutes, it's really coming down to a coin flip again. So there's going to be a lot of volatility going into that meeting. I do feel that the market is pretty much going to stay where they are as far as yields go as they approach that December 10th meeting. You're right to point out that we're not going to get the jobs data that we normally would have got before that, meaning that jobs data is going to come out on December 16th, a week later. So the question mark really is, does the Fed go ahead with blinders on again and do a rate cut, or do they feel that, let's wait for the data. And I think right now it's a coin flip.

Brian Pietrangelo [00:15:11] Certainly a great recap from the three of you for this week's activity and still remaining some of that uncertainty. So really glad to touch on it, Steve and Rajeev, in terms of that uncertainty and that volatility, as we give that guidance to some of our listeners to watch out for that volatility.

So we are here at this time of year again, which is special, not only because of Thanksgiving next week and the upcoming December holidays, but also this is a time of year when we craft our upcoming outlook for the new year, and we also take a look back and see how we did on our outlook for this year that we wrote in November of 2024.So, a great opportunity for us to have a little dialog in this special segment with all of you. And I'll start off by saying kudos to all three of you and the entire team within our chief investment office. In aggregate, we've got six out of eight calls that we made that we're pretty much spot on. So that's a pretty good track record in terms of the investment business. And we're happy that our clients benefit from some of these calls, if not all of them. So just to recap real quick on the macro-outlook. If you go back to what we wrote in November of 2024, George, you did a great job. Spot on. In looking at what presidential administration policies would be implemented in 2025 with regard to four key ones certainly tariffs, immigration, deregulation and tax policy. And what you wrote on page eight was pretty much spot on. So kudos there, George. Steve, on your side of the equation, your equity write up was talking about a really choppy and uncertain period in the first half of the year, and we'd have a lot of trouble making much of any headway until mid-year. And then we expect that in the second half of the year would have seen a significant rally coming close to exiting the S&P 500 at around 6600.

Really spot on. In terms of that, we were pretty close. If you look to where the S&P is today it's almost there. So great call on the equity market Steve. Third Rajeev, when you wrote also back in November, you talked about a possibility or 2 or 3 rate cuts in the year of 2025. And that was very different from some of the other competitors and pundits that we listened to who were calling for many more than that. So you're spot on here. When we get to this December meeting on the 10th. It could be the third time during 2025. So your 2 or 3 cuts during the year was also spot on. Great call there from the team. The other five were more on our portfolio strategy type calls. So just a quick rundown here. We had our international exposure, which we had been underweight to for about three years, which was really a great call for our clients.

And then back on April 1st of this year, we neutralized that underweight for our international exposure, which has again been very favorable given where international markets were. So that's one for one. There. Rebalancing. If you looked at our weekly investment brief that we write every single week, you'll go back to April when there was the market selloff during Liberation Day back on April 2nd, where the market had a significant downtrend, almost 12%. And we advised our clients to look at rebalancing back into that market and again, if you've watched what the stock market has done since April, it's been on a pretty big tear. So great call there, George and the team. Then when we got to September, we also thought that the market got a little frothy with your comments, Steve. And also your comments, George, and maybe rebalancing a little bit down on equities to take advantage of some of the valuations being pretty high in specifically the tech sector. So those three for three, the other two we were a little off. We'll talk to George about that. We had a slight underweight to mega-cap throughout the year and a slight overweight to small cap.

So we'll get to that for our tactical asset allocation call. We can pin on that George. And then the last one was we always have this emphasis based on our analytics towards quality investments, both in the stock market and in the bond market. And that did not necessarily do as well. This year. So George, you want to share with us some of the thoughts that you had on the underweight.to mega cap overweight to small cap.

George Mateyo [00:19:12] You had to pick up the negative I guess, huh Brian? Okay.

Brian Pietrangelo [00:09:15] Well, I couldn't say we were eight for eight!

George Mateyo [00:19:19] Yeah we were never perfect. But yeah, kudos to Steve and Rajeev as well for making some really prescient calls over the course of the last 12 months. And even beyond that, I mean, I think we've had a pretty good track record, knock on wood. And, you know, it's a hazardous business to get to put forecasts out there. And we don't again, we don't specifically make any forecast like some competitors do. Those are, you know, I think prone to even more error. And frankly, they kind of connote this, this illusion of precision. But we can talk more about that later. I think overall, in terms of things that we've been talking about, that we've been kind of structurally underweight.

The mega-cap. Yeah, that's been kind of a tough call, but that's, to me, more of a risk management decision than a pure station decision. And what I mean by that, I mean that I think we've seen there's just this continued strength in the Mega-Cap market, and it's been surprisingly good. And I'm not going to dismiss that. And we were probably a little bit too cautious about that. But at the same time, you know, as I mentioned, it's a small bet for many of our portfolios. And I think it's still the right bet to make in the sense that if you look at where the valuations are stretched the most and at this point where we maybe where the froth has been the greatest, it's been that core of the market where the, the overall, strength of some of these big leaders, you know, they continue get stronger, but they continue to get more stretched in terms of valuation.

So again, if I just put some numbers out there, the, the, the 100 largest stock now in the S&P, you're trading at roughly 30 times earnings. The cheapest stocks in the overall market are trading at about 16 times earnings. So, the smaller cap I should say. And that's a pretty big gap I mean that’s; you know, a pretty big yawning disconnect between the large and the least large, if you will. And what we've also kind of a noted is that we think, and I think this is still the case for next year. This didn't quite come true this year, but we still think there's going to be some earnings recovery, meaning those companies that really are the lower part of the market will see their earnings growth recovers.

So, I think we've looked at in the aggregate, we think it's appropriate probably to be somewhat balanced in terms of where your exposure is. And as I mentioned, maybe from a risk perspective, you know, a little bit underweight. The real mega-cap stocks is important. And I'll be very selective. You know, I think one thing that probably is underappreciated, what Rajeev and Steve do for our clients is the fact that they think about how to structure portfolios, looking at individual securities.

And there you can express a view in terms of really where you want to be, towards some stocks and some securities, some bonds and less exposed to others. So again, if, for example, we don't own the Mega seven outright, others, maybe they should, but we're more discerning about that. And the same thing, what's true in the bond market where we want to be more discerning, and we also have you mentioned the last thing I'll point out really quickly, right?

I think you mentioned, I think it's also important to note, is that we do have a strong structural bias towards quality companies. And that actually has not been rewarded. This year. Usually we think that it is a long term benefit, a long term thesis of ours. But this year of some of the best performers have been the, the, the worst companies in terms of their performance and their overall financial metrics. You look at, for example, companies that have no earnings, some companies have new revenues, and yet those stocks have done the best this year. So it has been kind of a low quality rally. And that actually has also been somewhat detrimental to our performance on a relative basis, I would say. But overall, we think that's going to be the more advantageous position to be in the long run because we do think over time quality wins out.

Brian Pietrangelo [00:22:25] Great summary, George, and we'll take stock of it every year given the difficulty that it is in the market. And I think those two are very promising from the perspective, emphasizing quality over the long term. It has been rewarded, just not this year. So great summary, George. So with that, that was our scorecard for 2025. So pretty impressive from the team.

And we'll use that as a pivot. George, for you to mention, as I did in the opening remarks that we've got our upcoming national call on December 3rd, where we will discuss our 2026 outlook, just like we did last year, and give our listeners a preview of some of the things that we might be talking about during that 2026 outlook.

George Mateyo [00:23:03] Well, I'll tease a little bit, because I think it's still coming together. I know Rajeev and Steve have been really hard at work, and our teams at the heart of work, trying to think about how to describe and discuss what we think will happen next year. And I venture to say that we probably won't get 75% of the calls. Right, but we'll see. I think overall, you know, there are three big things we'll be talking about. And we'll be talking about disruption. Does that really, we're at a time right now where the rate of change is accelerating and the forces of disruption are becoming more pronounced. So, we'll talk about three big ones. We’ll talk about this kind of overall I guess shift away from globalization into more of a nationalistic approach, the way many countries are behaving. That's actually having some implications for traditional norms and kind of historic precedents unlike we've seen before. So, we'll talk about some of those big shifts that are happening globally. Then we'll spend a little more time talking about some of the big changes that are coming with artificial intelligence.

We can't ignore that. That's been a big part of course. And let's continue to probably kind of also, going to be a be the case next year. And then lastly, I think something that might be kind of happening for a while, and maybe, again, underappreciated is the fact that there's a lot of structural changes happening inside the markets themselves. So we'll talk about those three big, shifts and those big sorts of disruption and what they might mean for clients’ portfolios in the years ahead.

Brian Pietrangelo [00:24:21] Well, thank you for the conversation today, George, Steve and Rajeev, we appreciate your perspectives. And again, one last reminder to have a great Thanksgiving next week. And after that, on December 3rd, we're having our national client call with our outlook for 2026 as we just discussed.

Please join us if you can. Well, thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you in two weeks as we are off for Thanksgiving. When we get back, we'll 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 14th, 2025. I'm Brian Pietrangelo and welcome to the podcast.

In case you didn't hear, this week marks the end of the penny for the U.S. currency. The United States Mint struck the final five U.S. pennies back on Wednesday afternoon, which ended the country's 232- year history of making the penny. Earlier this year, President Trump had given the order to stop producing pennies because of the cost is much more than is actually the value of the penny in some vicinity of roughly $56 million. And in case you didn't know, a penny is a combination of both copper and zinc and cost around 3.7 cents to make each penny, which is obviously only worth $0.01. So it will be interesting to see how this plays out. I know that pennies are still in circulation relative to banks and using them for purchases, I just don't know how it will affect the overall digital world that we live in today, and rounding up to the nickel. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Rajeev Sharma, Head of Fixed Income, and Brad Thomas, Managing Director of Equity Research within our KeyBanc Capital Markets line of business. 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. The economic calendar was extraordinarily light in general, but also on top of that, we did not receive the expected reports we were going to get according to the normal calendar. Examples of those include. The initial unemployment claims report was delayed for the seventh consecutive week due to the government shutdown. CPI inflation, PPI inflation and retail sales reports were also delayed this week. The good news, however, is the government shutdown did end after the longest in history, at 43 days, based on the fact that the party line votes were regularly consistent, however some Democrats did come across the aisle to work with Republicans to get this reopened, and then President Trump signed it. So now we have the work to do to reopen, and it should benefit those that need a little bit of back pay: air traffic controllers and other departments that we rely on within the government.

In addition, this week we heard the announcement from the Atlanta Federal Reserve President, Raphael Bostic, that he intends to retire at the end of February in 2026, which brings an interesting dynamic in terms of turnover at the Fed bank presidents. Plus, we've got the upcoming Jay Powell term ending in May of 2026 for his chair position. We will talk with Rajeev about that, get his perspective. In addition, thoughts from George on the government shutdown and what's happening in the economy. And last, we will have a conversation with George and Brad Thomas, our guest as a managing director from KeyBanc Capital Markets in terms of what's happening in the consumer sector.

So let's start the podcast today, moving to George to get his thoughts on what's happening. And I would be remiss if I didn't say, George, how about a penny for your thoughts?

George Mateyo [03:50:00] So the demise of the penny. Yes, Brian, that's a that's a good point. And, kind of sad to see it go to some extent, but I did recognize or maybe I read somewhere recently that it cost over $0.03 to make a penny. So maybe this is probably a better economic situation than we might make it out to be, in the sense that maybe we save some money in the process of, seeing the penny by the wayside. But but look, I think the bigger picture, of course, in the sense that if authentic $0.03 to make is that inflation is still a concern to many people, and that's evident by some of the Fed speak that we've had this week.

And we'll get really start on that in a second. But that just kind of takes the, you know, maybe a, path into the discussion around the deeper and longer narrative around what's happening in the market this week. And I think it's probably just a situation of great unknowns right now, as we kind of head into a slower time of the year in the sense that there is a lot of unknowns with respect to what the Fed might be thinking.

As you think about their next meeting in December. Of course, there's still a lot of unknowns with respect to the data. You, I think, referenced that a little bit in your comments, too, where we have to acknowledge that there's going to be probably just this void for a while. We might actually get a lot of data at once, but I think we're still trying to that we recognize that all the data we normally have is still being pieced together, so we don't have a really full, a great handle on really where the economy is at the moment. And I think there's also still a bit of, you know, uncertainty just around, you know, trade policy still. Right? I mean, we've talked a little bit about that and it kind of feels like a bit of a game of whack-a-mole that some of our listeners might remember in a sense, that I saw this week, and I was pleased to see you actually go down for coffee and bananas.

You know, two things I consume on a regular basis. But at the same time, tariffs are going up for time past I which, Brian, I know that's in near due to your heart and your family's traditions. So, you know, I still think we've got this ongoing on again, off again situation with respect to tariffs, but just adding greater, confusion as well. And then thirdly, I think we talked a lot about on this call, which has to do with artificial intelligence. And we've kind of seen the transition from kind of growth and I think to growth almost at any, any clip. And you'll see your stock price rewarded. Now what's happened I think is we started to call out in the past few weeks or so that investors are becoming a bit more discerning and probably a bit more selective, in other words, that they're not just chasing things because they're chasing them, but understanding that maybe there is some risk behind this massive amount of spending that's happening. Not to say that we're bearish on I certainly, but I think it does. Maybe some questions get raised around the profitability of all this. Spending will actually be what would come, I guess is the real question. So I think it's fair to say that there are a lot of crosscurrents still a lot of unknown questions, a lot of, uncertainty and fogginess to use one of, Jay Powell terms with respect to where the economy is.

So, Rajeev, you can put all this together. It's not surprising to me to see some confusion and maybe, dissension amongst the Ben, but the level of dissension, I think is really kind of raised a fever pitch this week where I think there's at least now 3 or 4 Fed governors or soon to be Fed governors or presidents of different Fed banks that are going to be on the committee next year that suggest that maybe we're going to see a very divided set when they meet later this, next month. So how are you thinking about what the Fed is thinking about? And maybe what does that mean for markets in your view?

Rajeev Sharma [06:57:00] Well, George, I think the big question remains. And as you said, will the Fed cut rates next month? And, a number of Fed members hit the airwaves, this week, and they didn't really sound very convinced that the Fed is going to cut rates. That led to some of the market expectations out there feeling that maybe a 25 basis point rate cut in December is now down to a coin flip? It's about 5050 odds right now. If we do get some belated data reports, it should help provide the market with clarity on where to place their chips as far as a record goes in December, because it is very rare that the market prices in Fed decisions as a coin flip just one month in advance of a meeting.

Generally, the market has a really good idea of where the Fed's going to be, next month, if you will. And right now it's coming down to a coin flip. A lot of that has to do with the government shutdown. A lot of that has to do with the lack of data. You know, the Fed really needs the data and so does the market. We may get some belated data reports. Will they be enough for the Fed to make a decision by now? There should be clarity and there's not. The bond markets do not have that clarity today. And then you have you know, other Fed members coming out and talking about, you know, we need more data. The other thing that add some alarm bells is the Atlanta Fed president, Raphael Bostic, announcement this week that he's going to retire at the end of his term in February 2026. This type of leadership turnover raises some questions about the Fed's ability to maintain its tradition of independence. So once again, those questions start to come up. How independent is the Fed going to be going forward? The Trump administration has been pushing for a more dovish Fed members. They've been pushing for rate cuts. Now you have Bostic replacement will be announced at some point next year.

That replacement will not be appointed by the white House, but, it'll be appointed by the Atlanta Fed. Fed's board of directors. So that does limit some of the direct presidential influence that may happen on this. But the context of turnover in the Fed, it never settles well with the markets. And I do think that, again, it adds the point where what is the makeup of the Fed going to be? How many dovish Fed members are going to be on there. What does that do for 2026? Outlook and beyond as far as rate cuts go.

And the market was not spared of this. I mean, this market the bond market experienced some excitement this week. We did see yields move higher on the talks of ending the government shutdown. Inherently that puts the risk on trade back on. And we did see investors move away from the safety haven nature of, treasuries and more towards risk assets. We also had a very busy week this week with Treasury auctions. Treasury supply hit the market this week in the form of three year tenure and 30 year treasuries. They totaled about $125 million. So that also put upward pressure on Treasury yields.

Overall, the three year auction did pretty well, but the ten and 30 year option had some mixed investor reception. And again, I think it comes down to the ten year right now, we're seeing the ten year at 4.11% this week. Despite the feeling that that's a big move, it remains pretty much at the midpoint of where we've been this month. This month, we've seen the ten year trade between 4.05 and 4.16%. So if I look at my screens this morning, I see buyers stepping in. I think buyers really get excited when we get above four, ten, four, 15. That's when you start seeing buyers feeling that this is an attractive entry point for the ten year. And when we started the, when the government started to shut down in early October, we did see a rally in bonds.

We did see yields fall for four straight weeks. As soon as the negotiations of reopening the government began, yields started moving higher. The reopening lent, support to consumer confidence and growth. And that also raises the odds that the Fed will pause in December. So there's a lot of moving parts here. I mean, credit spreads when reflected I mean, we saw an investor grade credit spreads this week wider by about two basis points. It's not a big deal considering the amount of new issue that we've seen in the market this week. High yield spreads were wider by seven basis points. Again, no alarm bells. So right now I think it's all going to come down to what kind of belated, data reports we get, what kind of Fed narrative comes out from the Fed before we lead up to this December, if I'm assuming.

George Mateyo [11:11:11] That's a really good backdrop, Rajeev, and I appreciate the context around kind of what's happening inside the Fed or what might happen in the Fed. In the next few months or so. To widen the lens a little bit and maybe I'll put our guest speaker here, Brad, into the conversation. So for those of you who need a quick reminder, Brad is a recurring guest or returning guest, I should say, so welcome back to the podcast. I'm glad to have you. Brad is a, managing director over at our key capital markets equity research team. Does a great job covering, money. The consumer stock, in, in the universe. And I think it's fair to say, Brad, that, you know, as reviewed talked a little bit about the consumer is at an interesting point.

Right now. We're they're dealing with a lot of uncertainty as well, on many levels. And I guess if you kind of think about the companies that you cover, what can you glean from that in terms of how the consumer is behaving? How are they thinking about, you know, spending as we get into the holiday season? And maybe we could talk a bit about this thing called a k-shaped economy, if you don't mind.

Bradley Thomas [12:05:05] Sure, George, and thank you for having me. There's a lot of interesting things happening right now for the consumer, and I would venture to say that there's probably more crosscurrents right now than we've seen in many, many years. But what we keep going back to as we think about how investors should be positioning for 2026, is that you've got fingers crossed, monetary stimulus and fiscal stimulus at your back.

That should support continued consumer spending. What we're hearing from our companies is, I give you a couple of bright spots here, durable goods. Home related spending for retailers like Home Depot and Lowe's, Wayfair, Williams-Sonoma. These are companies that were very challenged coming out of the pandemic. And we're finally seeing some growth again for these companies in in these categories.

And so that, I think is a bright spot. Larger retailers like Walmart, Amazon that we cover continue to drive very healthy sales growth. The challenge tends to be more in the middle, and that if you're not providing value, you're seeing some pressure. We're seeing that at target right now. Steers clear winners and losers. But overall we think the consumer is holding up still.

Well right now.

George Mateyo [13:33:21] And so I get the sense, though that there's probably some bifurcation though. And I kind of reference this a little bit with this notion called the k-shaped economy, which we've done. We talked a little bit about that bread, but I don't know if our listeners really maybe they just need a quick refresh. But, you know, you had think consumers at the high end of the wage spectrum, right.

And certainly they benefited from higher stock prices. Right. This is wealth effect I think is a real phenomenon in the sense that as your point K grows, you probably hold it better off if your home grows at least, you know, according to Zillow, you know, you feel better off. And, you know, people that have homes that actually have retirement accounts are probably some pretty good.

On the other hand, consumers that really maybe aren't as fortunate, maybe they rent for example, maybe they don't have quite the retirement savings and the nest eggs and so forth maybe feel a bit worse. Do you see that in actually the companies that you cover? Are you seeing maybe a bifurcated consumer at all.

Bradley Thomas [14:25:00] That's right. And it's a really important factor in the math behind

That's so important is that the top 10%, wealthiest Americans account for 50% of spending in the U.S and so while at an individual level, mathematically, it wouldn't seem to make sense in dollars, it does. And so that's where the stock market staying high and being today near all time highs is still a really powerful factor for the US consumer.

And so we are seeing, names that cater to a more affluent consumer doing better. We're actually seeing even value oriented retailers like Walmart, Costco talk about, getting higher income individuals coming in and driving their sales growth, at the low end. Interestingly, we're seeing the dollar stores do very well, and they say they're seeing some trade down from middle income individuals. And so I think that exhibits that k-shaped economy. You know, what we're watching going forward here would be obviously can the stock market maintain strength and that help keep the upper income individuals spending? And then at the lower end, can we get some benefits from knock on wood inflation moderating as we get past the tariff increases that we've had of late.

And, you know, could we perhaps see some of the cuts that the Fed is doing to trickle through to the shorter end of the curve and help credit card bills for a lower income individual?

George Mateyo [00:16:09] What about Sam? What within their wallet or within their spending, are they are you seeing consumers spend more on? I've heard things, for example, that consumers are spending more on experiences and things. And I know that doesn't really kind of exempt anybody from the everyday things that everybody needs shampoo and food and things like that, that require them to go to one of those stores you mentioned.

But are you seeing any shift in the way that they spend right now? Bread and spending, especially if you get into the holiday season, right. We're just a few weeks away from the holiday shopping season.

Bradley Thomas [00:16:38] George. I think we're finally at the end of the revenge spending that we were seeing coming out of the pandemic. You know, my restaurant analyst colleague Eric Gonzalez would probably be telling us right now about the challenges that the restaurants are seeing with how high menu prices have gotten.

And, and so this follows a number of years that people were obviously going out and really enjoying being back at restaurants after the pandemic. On the flip side, as I alluded to earlier on our home related spending side, we're finally seeing people, back spending on homes again after many years of not feeling like they needed to because they spent on so many accessories during the pandemic. So I think some of that is kind of wrapping up and and we think we're headed to a bit more normalized trends in all these categories going forward here

George Mateyo [17:34:00] in red. So she talked a little bit about the inflation effort. As it relates to restaurants and so forth. Are you are you seeing much in the way of impacting actually the companies themselves? So you talk about some of the major retailers, how are they managing through the uncertainty around tariffs?

Bradley Thomas [00:17:48] Yeah, it's a great question George. I'm glad you brought it up because as I mentioned earlier, this is a time where there's many crosscurrents. And one of the key ones that we're watching for this holiday season will be how much does the consumer push back or have to cut back on purchases because of some of the tariff increases?

There are categories like toys, where a lot of it comes from China. You just can't switch to other places on the toys. You know, we think holiday spending will still be strong in dollar terms, but there may be some houses that have one last item under the tree because of the tariffs. And, looking forward, you know, we think the consumer will be able to navigate it.

It is in more select categories. And we have seen, the Trump administration just, pull back tariffs by 10% from the fentanyl related tariffs. And so that should be a good guy as we think about the tariff and pricing dynamic as we move into 2026. But again, the price increases is something we're watching closely. And every management team would tell you they're watching really closely for this holiday season.

Brian Pietrangelo [00:19:02] Brad, George - George connected that with inflation and consumer spending habits quite well as your response. But one of the things that we've seen recently from the New York Fed was an increase in 90 days, plus delinquencies in credit cards, auto loans and student loans, loans. How do you think that plays in?

Bradley Thomas [00:19:20] So as we think about credit that ties to the k-shaped economy, that lower income individual, our math suggests that they've been having to tap credit cards at an increasing rate to order in order to keep spending. That's something that has had us worried about, in terms of the health of the consumer, in terms of the health of their ability to spend.

And this is where we believe it was warranted for the Fed to be cutting rates, because we think that that will tire that lower income individual and the hopefully lower credit card bills on the horizon from a lower interest rate, you know, could be a good guy. So, the coincident indicators not great, but the leading indicators, hopefully positive here.

George Mateyo [00:20:10] Brad, any final thoughts with respect to our, our our investors and our clients as we think about next year? You know, again, we're in the process right now of putting together our thoughts on the year ahead as well. And you've got to news you you've kind of mentioned that a few times, but anything we should note as we close out the call here.

Bradley Thomas [00:20:27] Yeah, I, I think I alluded to it earlier and you all have talked about it for, we think the tailwind for the US economy still should be a positive one. Normally you get monetary stimulus and fiscal stimulus, and that's a good thing for the consumer and the economy overall in our coverage, we think there are some amazing retailers out there like Walmart, like Amazon, very well positioned to grow and take, share, on a future podcast.

I'd love to have Justin Patterson or Jackson or some of my colleagues, however I and software on to talk about that. But from a retail perspective, we think Amazon is in a great space to continue to grow. So there's some wonderful investment opportunities still out there. You know, we think for investors and, again, a number of reasons that hopefully consumer spending stays strong into 2026.

George Mateyo [00:21:24] Super. Thanks so much Brad. Great to see you again.

Bradley Thomas [00:21:26] Great. Thank you.

Brian Pietrangelo [00:21:28] Well, thanks for the conversation today George. Rajeev and Brad, we appreciate your insights and thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you, so reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

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Brian Pietrangelo [00:00:00] Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics including the markets, the economy, human ingenuity and almost anything under the sun giving you the keys to open doors in the world of investing. Today is Friday, November 7th, 2025. I'm Brian Peter Angelo, and welcome to the podcast as we head into the weekend.

I would like to remind people coming up next week on Tuesday, November 11th is Veterans Day. Veterans day is observed as a Federal holiday, and it does fall on November 11th. It is designated as a day to honor the more than 20 million men and women who have served in the military. Now, this is slightly different than Memorial Day, which honors those that have died in service.

Veterans day is honoring those that are still living and have served. Veterans day was first observed on November 11th, 1919, known as Armistice Day, and honor the first anniversary of the end of World War One, which officially ended on the 11th hour of the 11th day of the 11th month in 1918. Later on, Congress called for an observance of the anniversary.

By 1938 and back in 1954, President Dwight Eisenhower officially changed the name of the holiday from Armistice Day to Veteran's Day. It is currently known today, so if you have an opportunity to thank a veteran this weekend and next week, and especially on Tuesday, I know that it would be much appreciated. Thank you everybody. 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 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 www.key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series which addresses 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 a very light week, given the fact that the government shutdown is continuing into day 38, and that means that the normal economic reports that we would receive this week, we are not receiving because they are on hold. In particular, the weekly initial unemployment claims report at a Federal level was not prepared, the job openings report from the Bureau of Labor Statistics and the Employment Situation from the Bureau of Labor Statistics, which include the new nonfarm payroll report we were supposed to get this morning, were also delayed due to the government shutdown.

So we look to alternate data, and some of that data begins with the initial unemployment claims at the state level, which normally gets aggregated up into the Federal level, and the reads from the state level. Reports show that there has not been a meaningful spike in any initial unemployment claims. So we look at that as somewhat favorable.

Second, ADP came out with their report this week that showed private payrolls increased 42,000 in the month of October, which was above consensus estimates. Again, we usually don't report on that because we use the Federal numbers from the Bureau of Labor Statistics, but it is worth mentioning, since the indicator that we have for this week.

And finally, the report from the employment firm known as challenger, Gray and Christmas showed that layoff was significant at around 150,000 in their report. And at the same time, it may or may not be overstated. We're not saying that it's inaccurate. We're simply saying that it does also include government layoffs that have included through the year.

However, we do mention it because it is noteworthy that it got a lot of press this week and also indicates that technology, industrials, and other automotive industries have been showing some particularly high layoffs. And last on the jobs data, the National Federation of Independent Businesses had their report for small business owners and showed that latest data had solid but slowing job growth. Small business owners are also facing challenges in that October, around a third or 32% of all owners reported that job openings that they could not fill in that current period. So again, there's still a little bit of a demand for workers in the small business arena.

Also happening this week, we continue to get a round of Q3 earnings. And on the tariff front, we had the Supreme Court of the United States hearing arguments from Solicitor General John Sauer in defense of President Trump's tariff policy. So we'll continue to get a little update on that. As we talked to our panel today.

With that, let's turn to George to start off our podcast with his thoughts on the economic data, the government shutdown and anything else on your mind today. George, what are your thoughts?

George Mateyo [00:04:55] So, Brian, I think it's probably time to recognize that I think the shutdown is starting to really have an impact on at least sentiment. I'm not sure if it's really having a profound impact yet on the economy. I think we'll probably get that later. And as we've talked about, typically when we see these shutdowns, the impact is kind of like the big weather event where, you know, you see some activity kind of slow down a little bit, and then when things reopen, you know, things actually kind of come back online and then maybe there's a bit of a bump because the activity was suppressed and then it resumes.

But this is a usual in the sense that this is an historically long shutdown. Now we're well into the 30 plus day. I think it's day 37 or so. And by all accounts, it looks like we're probably, you know, at least another week or two away from any resolution. So this is going to be, again, probably the longest shutdown on record. Just remind our listeners the average shutdown historically has lasted about a week. But typically shutdowns last a couple days. And there's one shutdown that actually lasted just a few hours. So again by just duration standards, this is somewhat unusual and lengthy. And again, I think it has kind of weared down sentiment.

I mean, you've talked about some of the the alternate data sources with respect to the labor market. I think we could continue to argue that things are not collapsing, but they're certainly cooling. I think they’ll probably kind of, you know, kind of meander for the rest of the year until we get maybe a bit of a lift in the early part of next year due to some, issues related to the One Big Beautiful Bill Act and other things we could talk about, perhaps later or in another call.

But nonetheless, for this time of the year where things are probably going to slow down a little bit and it'll probably be a little bit of a bumpy ride, given that slowdown we've talked about.

You know, there's other things we can look at. You mentioned a few of those, but I think the thing that caught my attention is that a percent of people who are actually currently employed, but are looking for additional jobs actually rose as well. So, again, these are things that we probably have to squint normally when we're kind of looking at a full slate of data. But since we don't have that full set of data, we're at the point right now where things are a little bit muddied and that we have to look for alternative data. And again, the data suggest to me anyway that things are not collapsing, but they're certainly cooling for sure.

At the same time, you know, I think some of the sentiment indicators, which historically are pretty volatile, also kind of reflect that, immediate, if you will. So the sentiment indicators such as consumer sentiment, their outlook for the economy continues to, to weigh a little bit. Again, it's it's at three year lows, I think on one survey.

So it kind of has to do has to get your attention. But again those things can change pretty quickly. And so I think it is fair to say that, you know, again, where we are right now is that things are going to be right around-people-I guess the one phrase is that, we're in the dark right now and people are often afraid of the dark, so we're kind of in this situation where we have to navigate through a lot of uncertainty.

But meanwhile, Steve, as I think about what you've been probably watching in the past week or so, is that their earnings story has been pretty solid. So the market up recently has been kind of ignoring some of the sentiment and the government shutdown issues, but focus more on earnings as you kind of get now through earnings season. I'm thinking we're probably roughly eighty or so percent of the way through earnings season. What do you think about the earnings season overall and where do we go next going forward?

Stephen Hoedt [00:07:47] Well George, you know when we look at where the earnings line for the S&P 500 and when we talk about that we're talking about 12-month forward earnings, which is what everybody focuses on. We actually hit a big round number this week. We hit $300. And I mentioned on a couple of these prior calls that, I think when, when I look at, our forecasts for 2025, we thought that we would exit the year at $300 per or, per S&P 500 index level. And you know, what's interesting to me about that is we got two more months almost to continue to see that line climb higher as we head through the rest of the year and flip the calendar to 2026.

So earnings have clearly come in, this year much better than people had expected. And I think it's part and parcel of why we've had a really good market this year. Absent kind of the, the tariff impact, coming out of February, March and April, which did cause a little bit of a of a dip in the earnings line before we continued to march higher. So, you know, at the end of the day, earnings higher, equal stocks higher on a long-term basis. And that's kind of been our mantra for quite a while. It remains very difficult to bet against the S&P from a long-term perspective, when you've got that earnings line moving to new all-time highs.

That said, you know, it's been very clear over the last month to month and a half that we've seen some froth building into the market. You've had a lot of meme stock stuff start to float to the top again. You've seen a lot of speculative activity. In my view, you've seen people get kind of two one sided on the market in terms of thinking that that they should just be all in on the AI and tech names and all that kind of stuff.

And, and what that results in, predictably, is the setup for the market to pull back a bit. So we've, we've seen the market pullback to the 50 day moving average this week. We're slightly below it in today's trading. But when I look at other indicators from whether it's credit market indicators such as, high yield CD spreads or things like where how the VIX is behaving, that's the Cboe Volatility Index.

I don't see anything right now that looks nefarious about this pullback. It feels to me more like it's just a reset of some of this kind of overly ebullient sentiment that we've seen kind of come into the market over the last couple of months. And, and, you know, it kind of will hopefully wash things out a little bit on the sentiment side and set us up for a strong run into year end.

And that that really is kind of the, kind of my base case between now and year end is that we, we do see the normal seasonality pattern reassert itself. We're into the strongest part of the year from that perspective. And when you've got again, earnings making new highs as we continue to go through this, there's clearly fundamental backing for the market to see that rally in the year end.

So definitely been an interesting week to see the numbers come out and to see the stocks be going down. But, at the end of the day, I think it's more just washing out some of that over-ebullience.

George Mateyo [00:11:06] Well, that's a great update, Steve, I appreciate that. I think Rajeev turning you, it's kind of curious to me, as I mentioned in my comments, that, we started we start to see, you know, again, this ongoing cooling in the labor market. Steve talked about AI. And actually, if you try to take out the impact from AI, the economy is going okay, but it's kind of, again, kind of sluggish overall. So again, AI, to Steve’s point, has really been responsible for a lot of the growth this year. And yet Rajeev, we actually had a couple of Fed presidents out this week talking about whether inflation is the bigger risk. And I think one of the Fed presidents actually talked about that inflation would need another 2 or 3 years before it actually reached their target. So how do you think the Fed is processing this level of uncertainty right now?

Rajeev Sharma [00:11:45] George, I think the Fed is trying to temper the market a little bit. I think the market, really got ahead of itself and started feeling that the Fed would let inflation run hot. Many Fed members are saying the most important thing is the cooling of the labor market. And, now I think the Fed is which said members that are speaking this week, I think they are really trying to remind the market that there is a dual mandate. Inflation is important. Inflation, if it runs hot, is not good for the economy.

And I think that, you know, it's tempering the market expectations on future rate cuts in future monetary policy. And so you're seeing right now that fixed income markets, they're seeing somewhat of a mixed performance this week based on those comments. And they're viewing the Fed as being a little more hawkish than they thought the Fed would be when the Fed starts cutting rates the market gets very excited. The markets started believing in a continuing rate cutting cycle. They start anticipating multiple rate cuts. And now you're seeing a couple of different factors happening in the market. First of all, the market for the Fed is not getting the data that they are expecting to get to make those rate cut decisions. And we heard from Fed Chair Powell the last FOMC meeting that without the data, December rate cut is not a foregone conclusion.

And the market did not like that that narrative. You saw the odds for a December rate cut drop down to 50% where they were almost at 98% before that, before those comments. We’re slowly clawing back-the market again is starting to claw back towards a rate cut expectation in December. Around 72% odds right now. But it's again not a foregone conclusion.

And when you see Fed members talk about inflation, I feel like it reminds the market that there is a dual mandate. The Fed cannot make these decisions about rate cuts with just ignoring inflation. I do the Fed moves the goalposts and say we can operate at 3% or 3% plus inflation and continue well, or they stick with their targeted mandate of 2%. So that disconnect is causing volatility in the markets.

We did see Treasury yields move with some variability across the curve. Specifically we saw the front end of the yield curve move slightly lower by one basis point back in use rose by one basis point. The yield curve flattened this week. Because the market is now expecting tighter monetary policy based on some of the, the comments that we're hearing from Fed members.

And again, as I said, without economic data, there's a growing concern that the Fed may not reduce, that we may not have as many rate cuts as the market has anticipated. And so, the messaging is going to be very important by the Fed right now. There is a disconnect. You could see that in corporate credit spreads for investment grade and high yield, both spreads have widened this week. And what's going to be very interesting in the near term to the fixed income markets is the amount of supply from the Treasury that's going to be coming to the market. The Treasury will sell $58 billion in three years, and on three year Treasury notes on Monday, forty-two billion in 10 years on Wednesday, and $25 billion in 30 year Treasury notes on Thursday. So the market has to digest this amount of supply coming in. Now the bond market is closed on Tuesday for Veteran's Day, nut this corporate bond market is going to continue up to Tuesday and then into, Wednesday, Thursday, Friday of next week. We're anticipating corporate bond new issuance to be around 40 billion, which is a very, very, significant amount of supply that's coming to market.

So you have spreads widening. You have this uncertainty by the Fed of whether they're going to have rate cuts in December or not. And you're starting to see the ten year kind of reflect that. We're sticking around that 4% level. But I think that, there's a lot of factors here that's going to be very important - the government shutdown - it's weighing on the economic outlook, and I think that's going to continue.

What investors are thinking right now is, is a couple of different things right now. Obviously, the supply that's going to come to market is very important for the market to digest that. They're also thinking about the uncertainty surrounding the Supreme Court decision on the legality of these Trump tariffs. And, a ruling against the tariffs would actually be, a bearish move for the bond market. It would- might require more long end issuance. And that's weighing on the sentiment of the bond market right now. And you could see some other stresses in the bond market. Money markets is one of them. We've elevated funding costs and emergency Fed interventions.

They could be showing some liquidity strain to the money markets. We see the largest one day move of outside of a Fed rate hike cycle this week. And the, overnight financing rate. Add to that bank reserves are down by almost they're down to a point where they're below $3 trillion. That's the lowest level we've seen in four years.

So we're seeing some funding pressures in the bond market. Basically, short term liquidity is tight. Money market funds may face lower yields and even redemption pressure if this volatility continues to.

Brian Pietrangelo [00:16:31] So Steve, you mentioned the rally in the markets since the tariff related news in April. And Rajeev, you just mentioned the legality question about tariffs as well. And this week for our listeners, US Solicitor General John Sauer was in front of the Supreme Court of the United States talking about the legality of the tariffs. And the general perception is that this is a process. And even if there is some deliberation, there might not be some consensus on deliberation until January or May of next year. So, George and Steve, how do you think that affects the overall economy and the reaction in the stock market?

George Mateyo [00:17:05] I think it's an interesting question, and I don't think anybody really knows, to be honest with you. I mean, I'm sure Steve's got a couple views on that because it could be somewhat beneficial to the companies that actually a corporation is effectively that actually had to pay these tariffs. Right. So maybe to some extent that the tariffs and if they're unwound or deemed to be unconstitutional, maybe that money gets repatriated back to those companies. I don't know. You know, that's one of the things that Rajeev talked about that could have some implications for the Treasury if they have to drain their accounts to pay those companies back, that could be negative for the bond market and market, the stock market won’t like it if rates go up. So who knows. And I think at the same time, it's probably likely more than anything else that the administration would come back and find a new authority to use tariffs, right? They would find another way to get tariffs done basically. So I think it's going to be probably a real, jumbled mess, frankly, and maybe a lot of volatility. But I think at the end of the day I don't think is going to change too much, but I think some short term volatility might ensue. That's my thought. Steve, what do you think?

Stephen Hoedt [00:18:01] Yeah, I think to the- for the market impact, which is what we would be focused on that; that's the key piece that I think that it would, it could potentially increase volatility again as we get this potentially unwound. And you know it's just kind of it'll be fascinating to watch how the dynamics actually play out. Because if they actually have to go back and pay back the people who paid these tariffs, that's going to be, to quote Amy Coney Barrett, messy or a mess. So like I think that, the impact there would be, kind of all over the place. But to your point, I think it's 100% likely that they would find some other authority and try it all over again.

And that's what, to me would really increase the volatility. So, hard to hard to game it out other than to say that that maybe volatility levels next year as we head into the decision period will be higher rather than lower.

Brian Pietrangelo [00:18:57] Well, thanks for the conversation today, George, Steve and Rajeev, we appreciate your insight 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.

Disclosures [00:16:27] We  gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, 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. It should not be used as a basis for investment or tax planning decision.

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. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. 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 [00:00:01] 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 31st, 2025. I'm Brian Pietrangelo and welcome to the podcast.

And today is Halloween, so we want to wish everybody a happy Halloween and a program note. If you're out there driving around the time of Halloween tonight, be careful on the streets. There's a lot of kids out there celebrating the holiday. Not sure what your favorite is, but mine as a kid was the mini $100,000 bar candy bars. It was a great taste: a combination of a lot of good flavors in there. Not sure what you're giving out, but whatever you do, try to make the kids happy.

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, Rajeev Sharma, Head of Fixed Income, 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, the light week was due to the fact that the government shutdown continues on day 31, so we have a full month. Without getting updated economic data. In particular, the government shutdown has occurred about 15 times since 1980. Most lasted a few days. The average was about a week, and the longest occurred back in 2018 at 34 days. So we're basically going to probably get to surpassing that as the longest shutdown in history here in 2025. Not much on the horizon in terms of resolution, so we'll have to keep you updated on a day-to-day or a week-to week basis. As a result, we did not receive any initial unemployment claims data in that regard. Also, yesterday we were supposed to get the first estimate for the third quarter of GDP from the Bureau of Economic Analysis, as well as PCE or Personal Consumptions Inflation today at 830. Again, that was delayed due to the government shutdown, so, we don't have that data.

President Trump was in China and met with President Xi and agreed to the truce on tariffs with respect to bringing those rates down to be more palatable and a year-long truce. So we'll talk about that with the panel today. We've also got Steve here to give us an update on Q3 earnings, some pretty big announcements this week. But also most importantly was the Federal Open Market Committee meeting this past Wednesday where the Fed delivered a 25 basis point cut. We'll talk more about that with Cindy here, upcoming on the podcast. So let's get right to our panel, starting with Cindy, to get an update on the Fed meeting this past week. And Cindy, what's your characterization? Do you think the Fed delivered some tricks or some treats, Cindy?

Cynthia Honcharenko [00:03:20] So Brian, the Fed definitely dealt us a trick this past week. The committee lowered the target range for the federal funds rate by 25 basis points to 3.75 from 4%. It also announced that it will end the monthly runoff of treasuries. So it will conclude the reduction of the aggregate securities holdings starting December 1st. And the vote at this meeting was 10 to two. Two members dissented: Stephen Miran preferred a larger 50 basis point cut, and Jeffrey Schmid from Kansas City preferred no change at all.

So what did they say in the press conference? Powell emphasized that policy is not in a preset course and that any future adjustment will depend on incoming data, the outlook, and the balance of risks. He also warned that a rate cut in December is far from guaranteed in light of elevated labor market uncertainty and elevated inflation, and also the government shutdown, which also reduced the data availability. He acknowledged that the labor market shows signs of weakening, inflation remains somewhat elevated and that the committees attended the risks on both sides of his dual mandate.

So looking at the two dissenters, why they voted differently, Stephen Miran preferred a 50 basis point cut, arguing that weaker labor market signals justified more aggressive easing, whereas Jeffrey Schmid preferred no rate change, reflecting concerns that inflation remains too elevated and that the monetary policy already seems adequately accommodative.

So what does the outlook and likelihood of further rate cuts in 2025 look like? With the Fed signaling optionality rather than a predetermined path, and given the dissents and uncertain data environment, the probability of another cut in December is moderate, but not high. So I would say right now the base case is that a 40 to 60% chance of a December cut is likely, and that'll bring the Fed funds target range to three and a half to 3.75% by year end. Rajeev. I'd love to get your take on this week's Fed meeting and announcement and press conference.

Rajeev Sharma [00:05:43] Well, thank you, Cindy. I think the, you know, the biggest takeaways is exactly what you said. You know, I feel the market expected that 25 base square rate cut. But when Fed Chair Powell said that there is no foregone conclusion on a December rate cut, that really took the market for a loop. We had about 99% odds of a December 25 base rate cut and now those odds are 50-50, like you said, so. I feel the Fed right now is in a situation where this cut was okay, but I think the next cut in December comes into question with the government shutdown, with the lack of data. I don't think the Fed is in any rush to commit to a 25-base rate cut. And I think that the market got a little ahead of itself. So we've seen a reversal. We've seen yields move higher in in in that feeling that there are, first of all, no guarantees for a 25-base front rate cut in December, and also there's dissent in the Fed. The two differing opinions that you mentioned, I think are very important to understand, because the Fed is not going to be able to really have a unanimous narrative going forward, and I think that's gonna be very important. So I do feel that there's question marks now, and I do that when we got that CPI report last week, the market really gravitated towards, not only the rate cut for December, but the market, really gravitate towards four rate cuts by July of 2026, that's all changed now. So there's a lot of question marks that then the government shutdown’s gonna be very important for the Fed and should be important for markets as well.

Brian Pietrangelo [00:07:31] Speaking of those things, there were a couple analogies that Powell referenced in his press conference. One was when there's fog, you slow down in your decision-making process like you were driving. I thought that was a pretty good one.

But also there's some other additional uncertainty as we talk about Jay Powell's term is up in 2026. So that provides a little bit maybe of also going at a slower pace. And Scott Bessent announced as a reaffirmation of the five candidates that they are considering earlier this week for the potential Fed chair coming up in 2026. So when we talk about that, there were five individuals he mentioned. We've got Chris Waller and Michelle Bowman, who are current Fed governors. Then Kevin Hassett is the National Economic Council Director. Kevin Warsh is a former Fed governor, and Rick Rieder is a BlackRock executive who specializes in fixed income, who's got a pretty good reputation. So certainly, Rajeev and Cindy, any thoughts about those candidates as we try to migrate to a new chair in 2026.

Cynthia Honcharenko [00:08:30] I think it's going to be Kevin Warsh only because he was already a Fed governor, and he was a pretty—he was a voting member during the 2008 financial crisis. So I think with his background, and he seemed to be pretty well liked in the Fed, I think he's a strong candidate for the next Fed chair.

Rajeev Sharma [00:08:59] I think you make a lot of sense, Cindy, but I think that whoever it is, it's going to be somebody that's going be more dovish than Fed Chair Powell. I think it's something that's gonna impact monetary policy going forward. They always say, do not fight the Fed, but at the same time, if you have a dovish Fed Chair, I think, that person will have a lot power to continue cutting rates. In my opinion.

I think Christopher Waller has a really good chance to take that position. He has pretty much dictated the markets as we've seen going forward for the last several months where he's been able to make statements that change the market. I think Christoper Waller has that knack to be able to do that. So I think it's gonna be somebody that's going to be dovish, but my take is Christopher Waller.

Brian Pietrangelo [00:09:53] Great. Thanks, Rajeev and Cindy. Now moving to the stock market, Steve, there were some pretty big announcements in terms of Q3 earnings this week. You want to talk about that first, and then we'll have a couple other questions for you.

Stephen Hoedt [00:10:03] Absolutely. So yeah, Brian, it was a big week for earnings. Five of the quote unquote Magnificent Seven reported and if we just go through them one by one, um, Amazon and Alphabet, which is formerly known as Google. They had outstanding results and stocks responded with significant moves to the upside. Apple reported yesterday, had kind of what I would call a meh report. Stock was all over the place after hours. Tim Cook had some comments in the evening on the conference call and some other places that kind of stabilized things and the stock is flat today. And then we had two of them that were kind of not so good in Meta and Microsoft, where they were both perceived as maybe outspending the expectations on their AI initiatives. And this the investment community is a little bit more concerned about the bang for the buck that they're getting on their investments there, in terms of what it translated to through the earnings.

So kind of a mixed bag there, but when you look at the way that the numbers themselves impacted S&P 500 forward earnings, if we take this out to how it's impacting the big picture, all of those companies guided higher. And what we saw was the S&P 500 forward earnings jumped by almost $1.50 over the course of the last week. When we're just shy of $300 a share right now, we're at $299.20. And when I came into the year, our forecast was for the year to exit at $300. So earnings have come in above expectations for the year. You've got a little bit of a kink higher going through this reporting season as these numbers guide higher. And I think that when we bring it back down to core principles, earnings higher equals stocks higher, you're looking at earnings exceeding expectations over the course of the year now three quarters in a row. And it shouldn't be a great shock to everybody that the S&P sits at new all-time highs as the earnings line is at new all- time highs as well.

Brian Pietrangelo [00:12:25] We also had some big news this week with the truce with China and President Trump and President Xi Jinping on the tariffs. What's going on there, Steve?

Stephen Hoedt [00:12:35] Yeah, the market largely shrugged it off, Brian, but I do think that it is notable from the perspective of potentially lowering the geopolitical risk situation that the market's been dealing with all year, off and on, ever since we went through the initial tariff situation back in February through April, which caused a huge drawdown earlier this year. You know, the acronym TACO seems to be something people bring up with this, and that stands for Trump Always Chickens Out. And I think the real interesting thing with this is this is the first time that I can recall a global geopolitical peer basically calling our bluff and getting us to back down as opposed to it going the opposite way. So I don't know what that means for the future, but I think it's something that's very notable here. This is the first time the U.S. has really kind of backed off on something that somebody else wanted. It remains to be seen how some of this stuff will track down to the micro level. The fact that the Chinese have seemed to loosen up on some of the rare earths stuff, does that impact the administration's policies toward domestic, trying to favor some domestic production here? They've been inking contracts and doing things in other spaces like nuclear and other areas over the last two, three, three four months, um, to try to support domestic or North American, uh, resource construction. I don't know if this changes that or not. And the other thing to pay attention to really is the potential impact on Nvidia, because Nvidia is making, uh it would, would like to be able to sell their Blackwell chips into China, that is still something that I haven't seen that's been resolved 100%. So it's still something to watch as we go through this. And there are smart people on both sides of the debate whether it's a good thing to sell those chips to China or not.

Brian Pietrangelo [00:14:44] Thanks, Steve. And we'll finish the podcast going back to Rajeev to get an update as we normally do on how the markets are going on in fixed income with spreads and some normalcy or anything that you're seeing of interest, Rajeev.

Rajeev Sharma [00:14:58] Yeah, Brian, I really feel that, you know, there were maybe two to three basis points of widening and investment grade spreads this week. Um, and, but it's nothing to cause any alarm bells. I really do feel that credit spreads have been extremely well behaved. We've talked about this before, and I feel that that that bodes well for all risk assets. I really that, uh, you know, we've seen an investment grade. We've seen in high yield. There has been some widening after the Fed meeting, but one thing we noticed is that issuance has come down a little bit. Generally, you don't see a lot of issuers issue bonds on Fed Week, but I do think that that's gonna pick up again. We have a probably pretty robust November coming up with new issuance, but the supply demand technicals for investment-grade corporate credit continue to support the market. And I really feel that you're getting blue chip companies have very attractive yields and that should continue for that demand for investment credit.

Brian Pietrangelo [00:15:53] Thanks for the conversation today, Steve, Rajeev, and Cindy. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters Podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:16:27] We  gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, 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. It should not be used as a basis for investment or tax planning decision.

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. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. 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 24th, 2025, I'm Brian Pietrangelo and welcome to the podcast.

We've got somewhat of a light economic calendar this week, and we'll get to that data here in a minute. But on a fun fact day, we've got two things going on in the sports world. One, we got the NBA season, National Basketball Association season, which tipped off this week, as well as the Major League Baseball World Series starts tonight. So, if you like both of those sports, tune in. You've got some good quality interaction to take a look at. Also, to have a little fun today, October 24th marks National Bologna Day. And this is a meat, lunch meat, everyone's favorite, which is named after the Italian city called Bologna, but there they call it mortadella. American Bolognese is a little bit different, and in general, some people call it bologna. And also, if you go to those folks in Pittsburgh, they call it jumbo. Some like it fried, some like it with mayonnaise. Not sure what your preference is. But either way, a little bit of nostalgia. I'm not so sure how many kids are eating bologna sandwiches these days. But if they are, hope they enjoy them.

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. And maybe if we have time later in the podcast, what their favorite sandwich is. George Mateyo, chief investment officer, Steve Hoedt, head of equities, and Rajeev Sharma, head of fixed income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

Taking a look at this week's market and economic activity, the government shutdown continues as we enter day 24 of the shutdown and we'll continue to report on that as it is newsworthy. In addition, we've got Q3 earnings in full swing and we will get that update from Steve. That being the case, we’ve got three updates to share with you given the fact that some the reports are continuing to be delayed due to the government shutdown. First, the initial weekly unemployment claims have been delayed for the fourth consecutive week in terms of an actual report. That being the case, some of the state-level reporting that does feed into the national federal report has been evaluated and some people believe that there's not any type of spike that would cause concern even though that data is state- level.

And second, the National Association of Realtors provided the Existing Home Sales Report, which showed a 1.5% increase in existing home sales for the month of September at a 4.06 million rate. Now, this is slightly good news because if you look at a month-over-month report, the number kind of vacillates from a positive number to a negative number, probably for the last six months, so seeing an increase for this particular month in September is a positive momentum. And some of it might be due to interest rates declining a bit, and in anticipation of the Fed's meeting next week with another possible 25 basis point cut, they might be going down. But please consider the fact that the Fed funds rate usually controls the short end of the curve and not necessarily the long end of the curve. Even though it will be helpful, you've got mortgages around 15, 20, or 30 years, so it tends to follow the 10-year rather than the 2-year. So the Fed Funds Rate cut will be help but not necessarily a lot. Again, this is important because the activity has been fairly slow in existing home sales due to the lack of inventory because people don't necessarily want to sell their home and give up a 3% mortgage they had pre-pandemic to get a 7% mortgage they have post-pandemic. And so again, interest rates and inventory are crucial to existing home-sales.

And finally, the most important point of the week is the Consumer Price Index report that came out from the Bureau of Labor Statistics. And by the way, it was delayed since the fifteenth of the month was the originally scheduled date of October it was supposed to come out. It's been released today due to the Bureau of Labor Statistics coming back to the office to compile and produce this report based on the fact that it does have implications for Social Security Administration's cost of living adjustments. The report has some mixed news, slightly unfavorable but also slightly favorable. Net-net, I think the markets will take it as favorable. But the news is that on a year-over-year basis, it was up 3.0% in September for headline CPI, which was one-tenth above August at 2.9. However, it is lower than expectations. On the core side of CPI which excludes food and energy, it came in at plus 3.00% for September year- over-year, which was slightly down by one-fifth of a percent from August. So, again, good news headed in that direction. Now again, I mentioned this is generally probably going to be perceived as favorable and will be likely and used by the Federal Open Market Committee in their meeting coming up next week on the 28th and 29th with the press conference with Jay Powell on Wednesday the 29th. However, as we've talked about before, the Fed's preferred measure of inflation is actually PCE inflation, which won't come out until the 31st after the Fed meeting. So we'll take a look at this inflation as measured by CPI and take it for what it's worth. We'll hear from Rajeev on the anticipation of the Fed's meeting next week. But before we do that, let's get right to George to give his thoughts on what's happening with the government shutdown, other topics that are near and dear to his heart. Thanks, George. What do you have to think? And what do you think might be important for our listeners? George?

George Mateyo [00:06:00] Well, Brian, after a long hiatus, we finally did get some information on the government side of things. Of course, there's been a lot of non-government related data that has been released. So people have a pretty good sense of where things are, I think. But in terms of the official measurements, it's been, it's a void for quite some time since the government's been shut down some 20 plus days or so ago.

I think the headline of course is the inflation story. And it was a better expected report in the sense that we missed on the high side, meaning inflation wasn't quite as hot as people expected it to be. We can kind of see that in a number of different key indicators underneath the hood. Some important deceleration of kind of the sticky components of inflation that we talked about, like housing, for example. We've been waiting, many people have been expecting housing inflation to subside a little bit, and it did. So that was some good news there as well. Other things kind of saw some modest trends, you know, food inflation is still probably a little bit higher than people want it to be. And that's one thing that maybe the administration might have to contend with. But overall, I think the report was probably a little better than expected. And considering the fact that tariffs are still, as we think, kind of coursing through the economy, it's been kind of welcome news that they haven't showed up in the inflation side. I would say on the other side, though, is that maybe it seems like companies are not really passing through inflation as much as people expected. Which, again, is one of the reasons why inflation was a little bit less than people expected this morning.

But we're kind of seeing some other parts of the economy kind of process that tariff hit, in the sense that I've seen the last two days, many companies talk about layoffs. So they're actually kind of making that adjustment, perhaps, with respect to tariffs in other ways. And so that's one thing that I think we have to be mindful of, is that the sense that maybe yes, inflation isn't quite as high as feared. It's still a long way from the Fed's target. And Rajeev, I'll be curious to get your take on that, too. But right now, from the company perspective or the corporation perspective, it doesn't seem like that they're bearing much of that impact directly and instead are maybe finding other ways to adjust their cost structure in the form of layoffs, unfortunately.

And of course, also on the tariff side, it's interesting to see that we've seen in the last 24 hours or so, the administration talked more hawkishly about Canada, one of our most important trading partners. We'll see what that looks like and how that plays out over time. But then next week, I'm sure all eyes will be focusing on what happens in China, which of course is another big trade partner that has some significant implications too, as the president heads overseas to meet with his counterpart from China apparently. So overall, it seems again that the inflation story is a little bit better expected. The labor market, though, I think, is still some we have to contend with, and since maybe there's additional weakness there that's starting to build, the numbers haven't really kind of borne that out just yet, but anecdotally, in a way, the reports seem to be servicing. So altogether, I think Rajeev, it sets up for a pretty interesting week when we have the Fed coming back into focus next week. I guess, first of all, Rajeev, who's going to be at the Fed meeting, and what do you think they're going to have to do, and what are they going to say when they get together next week?

Rajeev Sharma [00:08:50] All very, very good points, George. I think, you know, everybody's gearing up for this Fed meeting next week. I think it's going to probably be a unanimous vote for 25 basis points of a rate cut. Uh, and I really do believe that the market is, is gravitating towards that. They have been gravitating toward 25 basis points. The fact that we weren't getting any economic data because of the government shutdown, uh, you know, it's still, it never took away from the notion that the Fed is going to be on autopilot with that rate cut next week, but with that CPI report that we got, It was a welcome news to bond traders and it points to, again, a green light for a 25 base point rate cut next week. It also supports the odds of another 25 base point grade cut in December. It's a done deal as far as the bond markets are concerned with 50 base points of rate cuts this year in addition to the 25 that we got in September.

But what I felt that was the most interesting thing is if you're looking at market expectations, a benign CPI report is not being questioned at all for quality of data. That was one of the concerns in the market. So would they really believe the data that's coming out right now? Or would they believe the quality of the data? That's coming up. Nobody's really questioning that. In fact, the market expectations have now shifted timing of additional rate cuts for 2026. The market now expects nearly four rate cuts next year by June. So the market's really getting aggressive here as far as how many rate cuts we can expect.

Who will be at that Fed meeting? I think the most important person would be Fed Chair Powell in his press conference. I think he's going to really have to walk the thin line. He's been doing it at the recent speaking engagements where he's been talking about, you know, we're going to focus on the labor market. And everything he's been saying has been really been pointing towards these two great cuts for this year. I think, he's gonna get asked a question about 2026 and where his outlook looks for that. Obviously, we're not getting another summary of economic projections at this meeting, to where we're going to get the dot plots, but. But I do think that the question will be asked at how many rate cuts for 2026.

Now the month of October continues to be a rally month for the bond market. It really doesn't matter this month for which part of the curve investors are in position for, but owning long bonds have been the winning trade this month. And yields have fallen at a faster clip on the long end of the yield curve versus the front end. The six month closing range of the two's tens curve has been less than 21 basis points. So if you are a yield curve trader, it's going to be very tough to continue to find value because yields have fallen so much in the month. But other risk assets, this move lower in yields has been very reassuring for other risk assets, whether it's the bond market or the equity market. Bond market volatility is very low. Credit spreads remain in a tight range. Liquidity is abundant. All of this supports the market rally.

September's inflation print hit the sweet spot for the market. It was just the right acceptable range. Anything lower than that would have questioned increased growth concerns, perhaps. If we would have had a higher CPI print, it would have reduced the odds of December 20 and the 2026 rate cuts. The market really believes the Fed is willing to let inflation run above their 2% target goal, focus more on the labor side of the mandate. And this market is moving on from this report now. They got what they needed today with the CPI. Now they're focused on the weekend trade talks, they're focus on any trade talks with China. You've got the FOMC meeting, as we mentioned next week, any queues from Fed Chair Powell's press conference. That's what the market's now focused on. And if you look at 10 year treasury note yields, we're hovering around that 4% mark. The 4% mark on the 10 year is a psychological mark that I think is very important to note. Anytime we go above that, you do see buyers stepping around 4.15% for the 10 year, anytime we go below 4%, you see buyers somewhat step away. So we're kind of hovering around that four percent point. I think we're going to be here in the near term.

George Mateyo [00:12:33] Well, Steve, if we kind of flip over to you for a second, it is interesting to see that with, with Rajeev’s outlook for the Fed being kind of at our back for a while, right? They’re likely to cut rates a couple more times this year and well into next year potentially as well. Earnings so far seem to be coming through, you know, the stock market seems to love all this. So at what point do you think Steve that valuations are going to start mattering again? Because we're getting close to the peak levels, at least this year's peak levels on S&P multiples.

Stephen Hoedt [00:12:59] Yeah, you're not wrong about the valuation argument, George. But we could’ve made the valuation argument three months ago, six months ago too. And the market has continued to work its way higher. So I think that we're aware of it and what the potential implications are for long-term returns. But near term, it's really hard to try to get in the way of this market between now and the end of the year, to be quite honest.

I mean, when you look at things. What we've seen over the last couple of weeks from my seat looks like a good old-fashioned October-style washout. You had two areas of the market that had been kind of frothy, for lack of a better way to put it, and precious metals, slash gold, and momentum stocks kind of come under pressure over the last two weeks. And yet we've still seen the market as of this morning on the CPI news move to a new all-time high. So I think that the market is through this kind of October washout now, and we're heading into what is very clearly the best seasonal period of the year between basically the 20th of October and the end of the year. So, hard to get in the way there.

And when you think about what the fundamental backdrop is, you've got the S&P 500 forward 12-month earnings line making new all-time highs as well as we're at new highs for stocks. And as we've said over and over and over, whether it's on this call or in other places, earnings higher equals stocks higher, and unless and until we see an inflection in forward earnings, which given the economic and Fed accommodation backdrop, it's really hard to make that case. That said, near term next week is really gonna be like the Super Bowl for earnings because we've got major earnings announcements coming out of the Mag-7 next week with Microsoft, Meta, and Amazon all reporting. And what they have to say is gonna be very important. It's gonna be important for the AI theme, which we all know has kind of been a key market driver for the year. But I'm focusing on some underlying things in terms of between now and year end, whether it's stock buybacks, an uptick in M&A, that kind of stuff that we've seen here over the last few weeks. And once you get past the inflection point of earnings season, you do get those corporate buyers to come back in. And you put that together with the strong retail bid that we got underneath this market. And I think that, again, we think between now and the end of the year, you don't wanna get in the way of it. You're gonna be fighting the Fed, which has never been a good thing, and you're gonna be on the wrong side of the trade into the end the year.

George Mateyo [00:15:53] So the other thing I think that's kind of interesting, Steve, and Rajeev, I think this might have some implications for you as well, is that underneath the surface of the overall market, we've seen a concerted flight to low quality, I mean, I think also a lot of stocks, I shouldn't say all stocks, but many stocks have done well this year. But it's kind of curious to me to see companies that have no earnings effectively appreciating at a higher rate and actually have done substantially better than companies that have earnings. So in other words, companies with pretty good fundamentals, or at least some fundamental underpinning are actually underperforming those companies that have no earnings per se. And I think that's an important distinction. I don't know if you think about that or if that kind of, I know that doesn't really factor into your calculus when it comes to thinking about stocks that you buy on behalf of a client, Steve, but have you kind of seen any kind of interesting things underneath the hood that give you pause or maybe some concern that some of these low quality companies are doing so much better from a stock performance perspective or is that just kind of where we are in the market in the cycle right now that we're in?

Stephen Hoedt [00:16:50] I mean, it's kind of funny, George, because typically the lowest quality stuff doesn't rally at a market peak. It rallies coming out of a cyclical trough, right? And that's kind one of these things that has been really confounding to investors coming out of the post pandemic period. And that is that every single kind of playbook quote unquote item that you used prior to the pandemic has not worked after the pandemic. And that's the case, whether it's using economic heuristics, such as yield curve inversion, foreshadowing, inflation, or stuff like low quality rallies out of a recessionary trough and high quality outperforms everywhere else. Like it's almost as if the world not only got turned on its head in the pandemic in our real life, but like the market has gotten turned on it's head too. It doesn't, I'm staring at my Bloomberg this morning and the S&P high quality index for the year is up 12.25%, and the S&P itself is up 15.75. So at the quality factor, just using those S& P headline indices is 300 basis points behind the market year to date. And when you look at factor like high beta: high beta is up 28.88%. So high beta is up almost double the market. So to your point, low quality, high beta, this kind of stuff, it seems to be where there's a lot of market action. That gives me pause for sure. But I do think that when I come back to that earnings line, there's fundamental underpinning for why the market is continuing to grind its way higher, even if under the hood. You know, it's been an incredibly difficult year for individual security selection because of those dynamics.

George Mateyo [00:18:46] Anything, Rajeev, that gets your attention along those lines, too? I mean, you're obviously a quality investor, or we think we're quality investors when it comes to securities inside the bond portfolio, too, the bond market. Have you seen a significant shift or maybe an inflection point between low quality, high quality inside the market?

Rajeev Sharma [00:19:02] Yes, I have. I mean, I do think that, you know, high yield has done very well this year. I think we've always been promoting high quality names for our clients. And I really do think that high quality does give you the installation that you need in this environment. The difference in the bond market is you're getting really good coupons for blue chip companies. It doesn't make a lot of sense to me to go down the credit spectrum to pick up. You're getting good income from those high quality names. I do feel, however, where you see high yield spreads are trading. And you see the makeup of those high-yield issuers, you know, they're not screaming any signs of any panic right now, but I mean, at 272 basis points to the high- yield market, it's pretty much priced for perfection. So, any kind of pick up and default rates or anything else would really throw that market for a loop. And so, I really do feel that right now we're focused on high quality. We don't really need to go down the credit spectrum.

Brian Pietrangelo [00:19:53] Pick up extra yield. Well, thanks everybody for your comments on the markets and the economy. And let's finish up with a little round robin on what your favorite sandwich is these days to give our audience a little bit of entertainment value. Mine is the Turkey Club. It's a well diversified sandwich. What about you, George, Rajeev, and Steve?

George Mateyo [00:20:12] Oh, I can't turn down a good turkey club or a good Reuben once in a while, Brian, but I think my go-to is probably more traditional and I just can't say no to a good PB&J. So I'm gonna stick with peanut butter jelly. I'm agnostic if it's grape or strawberry, but creamy peanut butter is the way to go in my book.

Rajeev Sharma [00:20:31] Well, I would say, I think I speak for many people. I would have to say the pastrami sandwich at Katz Delia on Houston Street in New York City. I don't think anybody can compete with that. I think it's fantastic, but you have to be very hungry to have that big sandwich.

Stephen Hoedt [00:20:46] Being in Ann Arbor, Michigan, I have to say I can't go wrong with a Zingerman's Rubin.

George Mateyo [00:20:52] All right. Bon appetit everybody.

Brian Pietrangelo [00:20:54] Well, thanks for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed. And provide those keys to help you navigate your financial journey.

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