Key Wealth Matters Podcasts

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, August 8th, 2025. I'm Brian Pietrangelo, and welcome to the podcast.

And in case you didn't know, today is International Beer Day, so if you have an opportunity to have one to celebrate something with friends and family, it might be a good opportunity. My preference is the Yuengling Brewery, which happens to be compared as the oldest brewery in America out of Pottsville, Pennsylvania. And in addition, right here in Cleveland, Ohio, we have a tremendous craft brewery known as Great Lakes Brewery, which has gotten a lot of national attention, and again, and they've got a lot of different flavors. So if you have an opportunity there in Cleveland or across the country you might want to have a taste. Some historians track the invention of beer all the way back to roughly 4000 B.C. So a long history there and has a tremendous opportunity in terms of variety of flavors across the world.

Also today is known as National Pickleball Day which most people are gaining significant attention here in the last couple years and it's kind of rabid across the United States Getting a lot of action, a lot activity, but... It was actually invented back in 1965, according to some historians. So again, been around a long time, lots of fun. I've played the game four times. If you have an opportunity to get out there, it's a pretty fun deal.

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 and Steve Hoedt, Head of Equities. 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 release calendar was extraordinarily light this week. As you may recall, last week was very robust, and if you had a chance to tune in to last week's podcast, you heard all about it. So for this week, two quick updates. The ISM services PMI data came in for July at 50.1, which was lower than June at 50 point eight, so a little bit of a slowing in the services economy, but that is actually something to take a look at because the services economy has actually been in an expansion phase for roughly the last five years, so we'll continue to watch that.

And secondly, the initial unemployment claims report came out for the week ending August 2nd at 226,000 claims, which is up mildly, about 7,000 from the prior week. But that's been in a decline for roughly last five weeks, so watch that as we continue to remain in a situation where we're trying to figure out whether the employment data is actually showing softening in the employment and labor market relative to some of the other statistics that we shared last week.

As we tee up our conversation with our panel today, we are gonna have a slightly different conversation than we normally have each week, and that is because there's such a light economic calendar. So for today's conversation, we're gonna ask our panelists two questions apiece and get their reactions for our audience. First, what happened this week that caught your attention and why? And second... What topic do you find interesting that not many people are talking about? So let's start with you, George. What are your thoughts?

George Mateyo [00:03:32] Well, I think one thing that caught my eye this week, Brian, was just the astounding amount of money that continues to flow into AI. And I think we really have become maybe not an economy based on AI, artificial intelligence, but certainly it's been a stock market based on artificial intelligence. This week, for example, I read a piece of research that talked about that the amount of spending right now going into AI-related infrastructure, and maybe that's just maybe a small subset of the broader spending on technology, but spending in AI eclipsed $150 billion in the first half of this year. And to put that number in context, the entire amount of consumer spending that took place in the first half this year was about $75, maybe $80 billion dollars. So almost 2x of spending going to AI versus consumer spending. And that's a big deal, because as we've said before, in other other contexts, you know, the consumer represents something like maybe 70 percent of the overall GDP in the country. So. That's a big number when you see that.

And again, it's kind of the context of the valuation that OpenAI is now, I guess, purportedly worth of some $500 billion. A company that was started now less than 10 years ago would suggest that you can be a company, you can a startup, and then in 10 years, worth half a trillion dollars, which is quite staggering. So that, to me, is one thing that stood out. I think that maybe is maybe more of a cautionary comment.

The flip side of that is though that there's also some research I read that looked at the overall number of, I guess, the dollar amount of revenues per employee. As a way to measure productivity, some people look at revenues per employees to understand how productive the economy is and how productive certain companies are. And that score, if you look maybe back probably 30 years ago or so, we've seen a significant uptick in productivity on that measure. So some 30 plus years ago or so the average revenue per employee in the S&P 500 was roughly 400,000 and today it's close to 650,000. So that's about a 50, maybe, I guess, I'm trying to do the math, maybe about a 60% increase in productivity on that level. So. Again, technology has been kind of a story much of this year, and I think that's going to be something we have to keep an eye on. Whether this echoes from kind of the 99 tech bubble, we'll see. But that's one thing that cut my, in particular, this past week, Brian.

Brian Pietrangelo [00:05:49] Steve, how about you? What caught your eye this week?

Stephen Hoedt [00:05:52] So for me, it really comes back to the whole Fed situation with the, with the White House picking a replacement on a temporary basis, who's pretty dovish. So as we head through the rest of the year, you're clearly going to have another dissent that's going to be there at the very least, or clearly another voice in the room that's gonna be arguing for rate cuts. And I think it sends a very clear signal about what the administration would like to see out the next chair. And it seems like sooner rather than later, we could hear an announcement on that too with the odds on whether it was Polymarket or some other place, skyrocketing on Governor Weller being the most likely candidate as the new Fed chair. That news kind of emerged as we went through the course of the week, as we had the announcement of the temporary one.

I think when that kind of came out in the middle of the week, it took the market a little bit by surprise. I don't think people were expecting that there was going to be a temporary person put in there, and things kind of started to move really fast after that in terms of who could end up being the next chair. So I think from my seat, I know it was kind of a quiet week here in midsummer, but that was a pretty big deal.

George Mateyo [00:07:21] What was one thing that caught your eye this past week? Knowing that it was kind of a slow day to week, anything particular grab your attention?

Brian Pietrangelo [00:07:27] It did, George. I think Trump's direction towards the possibility of having private equity and 401k plans for a broader exposure, I think it's not necessarily new, but it's ongoing and getting a little bit more attention. And my two thoughts on that are first, I think, in a way to provide access, I think it could be a good thing because of providing access to a different part of the market that's not normally available to most people is somewhat attractive. And the exposure I think would be good for some private equity firms. But I will tell you, there's also a downside risk in that area. And the downside risk is certainly the fiduciary responsibility that corporations have to take in putting together an investment menu for their participants to select. And in addition, you've got liquidity issues. And third, I think what most people don't also think about is the inner workings of a 401k plan along the lines of certain record keeping requirements. And therefore, you got to pass this record keeping on to how do you actually record keep the units of a private equity funding due to an individual that can invest in 401k plan. So I think there's more complications there than people realize, and so that did catch my eye, this particular George. Second question for our panel, what topic do you find interesting that not many people are talking about? Again, we'll start with you, George.

George Mateyo [00:08:40] Well, Brian, I think people are still talking about it, but maybe not as much as I think they should is the China situation, right? I think China has been in and out of the news and maybe it's just been kind of somewhat faded against all this other stuff regarding tariffs. And certainly the situation in the Middle East, the situation involving Russia and Ukraine have dominated the attention and rightly so. But I don't think we should take our eye for a ball with respect to what's happening in China. It's a very important economy. And I think he probably has misunderstood to some extent. I don't think it's hard to understand. The economy itself is somewhat opaque to begin with. But that said, with the second-largest economy and geopolitical concerns probably never too far away, I don't think we should overlook that as a potential risk, but also an opportunity in the sense that they're trying to get their housing and their property markets right-sized. It's proven to be pretty challenging, and yes, they've got some headwinds with respect to tariffs and some of the concerns with exports and so forth, but I wouldn't overlook that. And if nothing else, it seems to be somewhat uncorrelated to that of the overall US market.

So if you're looking for places to diversify your portfolio, again, we've talked about this on this pod and other places for the last seven months now, but international markets probably deserve mention. And I wouldn't probably go big into China in a big way, but I think it deserves some role in your portfolio if you're going to be truly diversified. And then I'd also kind of point out, maybe related to that, is just the fact that we've seen this kind of shift away, this question on use exceptionalism. I'm not saying that that's spading, but again, I think being invested internationally still holds a lot of merit.

Stephen Hoedt [00:10:17] So for me, the thing that's kind of maybe flown under the radar has been the situation that has been created by the administration and the gold market this week. When you go back to April, gold and silver both were put on the exemption list for the tariffs. Um, and this week. The Customs and Border Protection clarified that one kilo and 100 ounce gold bars are going to be subject to tariff levies. And it's blown up the gold market on a global basis. 39% import tax on a gold bar into the US: not something that people were anticipating. This is a big deal because gold bullion gets shipped around the world. Central banks own it. If you're a central bank and you're shipping gold bars into the US right now, you could get tariffed on them. So, you know, it's something that It's something to pay attention to. It's going to definitely impact physical flows. It's disconnecting the COMEX gold market in New York with the other two global hubs right now, which are London and Shanghai. And it's causing real problems in the physical markets. So it's something take to watch here.

And I pointed out because this is a little bit different than copper, where we had copper market turned upside down by the administration a couple weeks ago, because there is a reserve component to this in terms of what global central banks do with their gold holdings. So this impacts much more than just a few people trying to figure out how to settle futures trades in New York with physical bars that can't get shipped here anymore. So, I think that we'll hear more about this in the next couple of weeks. I'm sure it's unclear right now if the US is going to impose tariffs on 400-ounce bars that come in from London. So, again, all kinds of turmoil created by the tariff stuff and the specific rules. And this is where we're getting caught. We're finding out now what these specific rules are, and some of them are really. Sometimes it makes me wonder how well thought out this was when you think about how this can be so disruptive to capital flows like this.

George Mateyo [00:12:47] That said, I don't see the price of gold under too much pressure right now, and unlike copper where it really got whacked pretty hard.

Stephen Hoedt [00:12:55] Well, it's spiking, George, relative. So like a week ago, the spread in between the COMEX and London was $45 or $50, and today it's $120. So like you're seeing a disconnect between these markets because of that.

George Mateyo [00:13:11] Just to be clear that you're looking at the way the gold trades on different exchanges. It's not gold itself, but the relative price, I guess, if you will, between two exchanges that gold trades are. Correct. Are you expecting to see some pressure at the overall price level though?

Stephen Hoedt [00:13:27] Um, no, it actually should put pressure to the upside the way that it looks right now. Got it. $3,500 gold is probably going to be a thing.

George Mateyo [00:13:37] Well, with that, let me turn it back to you, Brian, and in terms of other things that people aren't watching enough or giving enough attention to what's on your radar.

Brian Pietrangelo [00:13:45] George, interestingly, you touched on a couple thoughts today and we had some from last week. The first that you touched down was the AI trade with productivity and what it's doing to our workforce. And then last week, we had that surprise revision to the new non-farm payrolls. So what I'm starting to think about doing some preliminary research on is really the demographic nature of our employment market. And if we have a number of people that are getting close to their retirement age, and then we've got a bunch of young graduates out of college and entering the workforce What are those demographics looking like with productivity and with AI and job replacements? So I think it's something that is not new, but it's is something that I'm going to be doing a little bit more research on. And what are we doing for our younger folks out there to help them understand because the older folks out they're like us more so we understand what it means to be in the office. We understand what that means to do jobs. We understand what it means to have a good career in development. And so I'm trying to think what we do for the younger generation in terms of that so that they're not stayed in a, you know, behind a computer all day. Artificial intelligence is taking over the job that we really got to paint a good roadmap for them for their careers overall. So that's what I'm looking at George. Okay with that we always like to close with you George on any thoughts that you want to share with our investor audience just to keep good reminders for the future of investing principles. George any thoughts?

George Mateyo [00:15:02] So, Brian, I think we've talked about this a lot this past few weeks or so, where valuations have gotten a little bit extended again. Steve's been right to point out some of the complacency indicators that he watches to suggest that maybe there's been a froth in the market. And, yeah, I, I think we just don't think are at the ball. I mean, it does feel like there's kind of a bit of an upward drift to the market, which might persist a bit longer. We've talked about the fact that urines are coming in higher than expected, which is all great news. And by accounts, the odds of recession have really faded into the background quite nicely. So right now, it doesn't seem that there's anything that could really disrupt that. But, you know, just when you kind of get complacent, there's always something that comes to the left field that we just don't anticipate. That could cause that narrative to change pretty quickly. So I still think you're really kind of being diversified is the best strategy because frankly, the evaluation is pretty high. Fundamentals are good, but they could change pretty quick. And as you pointed out, there are some softening signs in the labor market that are pretty important to watch as well.

Brian Pietrangelo [00:15:57] Well, thanks for the conversation today, George and Steve. 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 will catch up with you next week to see how the world and the markets have changed. And provide those keys to help you navigate your financial journey.

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Brian Pietrangelo [00:00:01] Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing.  

Today is Friday, August 1st, 2025. I'm Brian Pietrangelo and welcome to the podcast. We start this week's podcast with some somber news, so I would like to take a moment of silence to reflect on some of the tragedies that we experienced in New York City this week, as well as just outside of Cleveland in Lorain, Ohio, where a number of people were killed. And so I think it's a moment that we do take, not only for those two occasions, but other occasions that happen throughout the world that, again, deserve a moment silence. So take it with me, thank you. And again, thank you for that. And our hearts and prayers do go out to those individuals and families that were affected.  

So with that, I would like to introduce our panel for investing experts here to share their insights on this week's market activity and more as we get into a robust agenda of a lot of activity this week. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, Rajeev Sharma, Head of Fixed Income, and Cindy Honcharenko, Director of Fixing Income Portfolio Management. As a reminder, a lot of great content is available on key.com slash Wealth Insights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.  

Taking a look at this week's market and economic activity, we have a robust calendar update. We've got eight updates to share with you. We are going to condense it into chunks of information so that you can capture it all and that's so we can give you a dialog on what's happening in each of these areas, especially with our dialog during the panel podcast. The first three updates are less market moving items, so we're not going to spend a lot of time on them. We're just going to give you the surface level update.  

First, we've got the weekly initial unemployment claims stayed very stable at 218,000, so not a lot to talk about there. Second, we had the job openings report that came out earlier in the week at $7.4 million for the month of June, which is down slightly from May, again not a lot talk about there in terms of market moving events, just part of the overall employment picture. And third, we had existing home sales for the month of June decreased by 2.7%. Which again goes back to the factor that we don't have a lot of inventory and therefore overall sales have decreased because of the mortgage dilemma in terms of people having a 3% mortgage pre COVID and a 7% mortgage post COVID and not a lot of turnover for the overall inventory of homes.  

Now for the next three, they're pretty important reports for the week and do have market moving implications. So we're going to talk about them a little bit more in detailed with starting with number four. GDP for the second quarter of 2025 came out and the real GDP number was an up 3% in terms of quarter GDP growth quarter over quarter. Now this was positive because last quarter in the first quarter of 2025 we did have a minus 0.5% growth but both of these quarters numbers were affected by the overall trade imbalance in terms of what is called net exports as part of the calculation within GDP. So certainly hurt that on the first quarter of 2025. We saw a reversal of that in the second quarter of 2025 to help stabilize the overall real GDP number up 3%. Within that number, we did see some slowing of consumer spending.  

And number five, just yesterday, we got the PCE inflation or personal consumers expenditures inflation number that came out, which is important because that is the number that the Fed looks at. However, it was one day after the Fed meeting, which we'll talk about here in a second. And the number was OK, meaning that it did not go down, but it also went up a little bit in the overall number at 2.6% year-over-year inflation in the month of June. Now, that's a little of a tick up, but we look more at the core inflation number, which excludes food and energy, which remain consistent at 2% year over year in June, which was the same as May. The less favorable news is that it's not going down, and also in spite of taking a look at whether or not tariffs will have an implication on overall inflation is a to-be-determined and often talked about within the circles of the economics and also the Federal Reserve.  

And sixth, we got the employment situation report just this morning at 8.30 which had some pretty market-moving information in it. The first is the new non-farm payrolls report where only 73,000 new nonfarm pay created for the month of July. And the overall unemployment rate ticked up to 4.2% from 4.1%. But however, for the last six to nine months or so, it has been between 4.10 and 4.20, or 4.0 and 4 .2. So not a lot of movement there in terms of direction. However, the biggest news of that report. Unquestionably was that the two prior months for the new non-farm payrolls numbers for the months of May and June were revised downward to the tune of minus $258,000. So that is a significant number that we haven't seen in terms of revisions to that magnitude and it does take into consideration that the jobs market may be softening in terms of the new Non-Farm Payroll numbers not only because the month of July at $73,000 was lower than expected. Lower than the average, but also the 258,000 negative revisions for the prior two months was a pretty big impact.  

Then the last few items to discuss, certainly number seven, the Federal Open Market Committee did have their meeting on Wednesday in their press conference. We'll get an update from Cindy in that case.  

And then last eighth, we've got the midst of earnings season for Q2. We'll have Steve talk about what that means in terms of some major companies and the overall trend for the quarter in terms of earnings. So with that, a lot of information to digest with our panel today. We will start with the update from Cindy in terms of what the Federal Open Market Committee did and communicated on Wednesday. So Cindy, what's your update?  

Cynthia Honcharenko [00:06:31] So the Fed kept the federal funds rate unchanged at the target range of four and a quarter and four and half percent. This was the fifth consecutive meeting without a rate change in 2025. I wanna highlight governors, Michelle Bowman and Christopher Waller dissented preferring a 25 basis point cut. This is significant because formal dissent by board governors is very uncommon and two dissenters voting together has not happened since 1993. Plans to continue reducing its holdings of treasury and agency-backed mortgage debt was confirmed. And Chair Powell emphasized a cautious data-driven stance with no commitment to a September rate cut. So what the rationale is behind the decisions, there's three, one is elevated inflation. Inflation still remains above the Fed's 2% target.  

The second is the labor market remains robust. Unemployment remains low and employment trends are still solid. And third, growing trade uncertainties. Powell pointed to rising tariffs, adding to costs on certain goods and raising concerns about inflationary pressures persisting. So the takeaways from the press conference, I really thought it was a dud initially, but I did analyze it further and I came away with seven. One being there was no commitment on a September rate cut. Powell stressed that no decisions been made regarding a rate cut at that meeting. Uh, second current monetary policy was described as modestly restrictive. So the current stance is deliberately restrictive, yet not overly tight and views viewed as appropriate for now.  

Next is tariffs seem to be driving inflation risk. Powell acknowledged that tariff-induced price increases are emerging across certain goods categories. For example, imported durable goods, especially household furniture, which was up 1.3% in June, appliances up 1,9%, and computers and electronics were up 1.,4%. Other goods impacted included recreation products and retail imports more broadly.  

Powell mentioned the Fed is being pulled in two directions. The Fed faces conflicting pressures of a solid labor market versus still inflated elevated inflation. Then the market pricing recalibrated following the meeting and the press conference. Powell's remarks for the expectation for the September cut dropped sharply. Fed independence was underscored. Powell strongly asserted that the Fed does not consider government borrowing costs when setting interest rates. And he also emphasized the importance of data-driven and politically independent approach.  

And then finally, again, the notable descent of Michelle Bowman and Christopher Waller were acknowledged. And this is the first dual descent since 1993. So what are the likelihood of Fed cuts later this year? Well, before the meeting, September 2025 rate cuts were around 65% and that reflected a strong expectation for at least one rate cut soon. After the meeting the odds dropped to around 46 to 49% and finally settled in around 39%. September seems to be no longer the expected timing for rate cuts and the markets see it as a close call at best. The first cuts are likely coming in fourth quarter with probability rising steeply as we approach late October and December. And this shift reflects the feds previously expressed caution and the lack of conviction in the third quarter move. And that was reiterated by Chair Powell in the conference.  

And then finally, I wanted to hit on some comments about the descents with Michelle Bowman and Christopher Waller. So Michelle Bowman, her rationale for dissent is the labor market is showing stress and her view on inflation is one of minimal concern and that tariffs are viewed as temporary. Christopher Waller, his rationale for descent was weak payroll growth and job momentum. And his view on inflammation is that tariff risk is limited and very short-lived. This is very significant because their vote marked the first dual dissent by Board of Governor members since 1993. And this also highlighted internal disagreement at the Fed's most senior level. Both of these governors are Trump appointees and their dissents add to speculation around Powell's succession.  

Plus Waller's been frequently mentioned as a potential candidate for Fed chair in 2026. And finally, while some analysts view that Bowman and Waller. Waller's dovish economic stance politically aligns with President Trump's recent pressure on Chair Powell to lower rates. Others contend their arguments are genuine concern for the labor market and not political. So after I gave you that, a lot has changed since the Fed announcement in Powell's press conference. George, Rajeev, I'd be interested to hear your takeaways from this week's Fed meeting and the most recent updates we received this morning.  

George Mateyo [00:12:02] Well, Cindy, you're right to say that it started off as a dud. And this week kind of started off the same way where we had a lot of news throughout the week. And it really, I guess, kind of took a crescendo as we went through the rest of the week, here we are Friday morning at 10, 15 or so talking about the Fed that did nothing but said a lot. And I guess they didn't say much by dissenting. I guess that was the key takeaway from my perspective. And Chair Powell used this term that he wanted to be efficient. And I'm not sure if that's been really be the death knell in terms of his overall stance and in terms of where we go for breakouts from here. But I don't think the market cared for it that much. But the market now, as you pointed out, started to shift its focus on the labor market.  

And you're right, we talked a little bit about Waller, I think about maybe a month or so ago, we mentioned to him that it's probably a dark horse that could probably emerge as a potential replacement for Jay Powell. Now he seems to be vindicated, I guess, is the word of the day in the sense that he was dissenting this week, and also signaling the fact that the labor market was showing some weakness, and we've surely got that today. I think we've also been pretty clear in arguing the fact that just because tariffs have not been impacted or not impacted the economy doesn't mean that they wouldn't. And now I think what kind of seeing that actually take place. It's not so much tariffs right now as it is doge and some other things that are causing the labor market to slow down a little bit. But I'm sure that the uncertainty factor is not lost in anybody. And so we've been thinking for a while that there isn't much firing going on in a big way, but there shouldn't be not much hiring going on either.  

And that was also born out in some of the data this morning. Earlier this week, we also got some news that respect that further that idea in the sense that the number of jobs that were opened last month fell quite notably in At the same time, though, the claim numbers that Brian pointed, talked about had remained stable. So again, it's kind of this notion that things are slowing, but not really collapsing just yet. But certainly this is going to be the snooze we got this morning in the sense that the payroll numbers that were revised in the prior month were quite notable in the sense that it does seem that the labor market really started to show some cracks.  

So we'll pay attention to this for sure. I don't think I still don't think this means our recession is imminent, but I think it does further validate the case that a slowdown is upon us. And we're starting to really see that really manifest itself in overall risk markets this morning with stocks down quite a bit and the bond market's up. And I guess you could say that we've got one big, beautiful bond market that people are looking at right now. There's plenty of yields falling as much as they're falling right now. How would you characterize what's going on?

Rajeev Sharma [00:14:28] That's a great way to put it, George. And I like that one, beautiful bond market. But, you know, I really think that a couple of things here, I mean, we were in this growth scare situation earlier in the year, you did see a run to safety haven assets. We're seeing that today as well. I think there is a scare that's coming up on the economy here with the cooling of the labor market based on the latest jobs report. Talk about volatility though. I mean we've seen a lot of swings in the market this week. I mean Cindy and you both have covered most of the takeaways from the Fed meeting.

I would just add a couple things there and then get into how the yield curve has been shaping throughout the week. But one thing, I mean, we're focused on dissents. I think it was one of the biggest key takeaways from the FOMC meeting. But what's interesting is, if you look back in history, dissents were happening. It's just recent history that we got so accustomed to unanimous voting, unanimous outcomes in the FOMC meeting that this kind of created some waves. And I really don't think it should have really been a big surprise because Waller and Bowman have been coming out pretty strong in their narrative and their sound bites and saying that, you know, we, we really feel that rate cuts should happen now, uh, then all of this does cause some noise in the market and we did see, uh, the, uh the huge recalibration, if you will, and rate cut expectations from the beginning of the week to the FOMC statement release, where we saw September rate cut expectation at around 68%.

 And then as soon as the press conference started, many viewed that Chair Powell is more hawkish, who brought those rate cut expectations below 50%. And then we get to this jobs number, which was a quite significant move in the market. We saw basically those who were doubting whether we were gonna have rate cuts or not in September are now not doubting it anymore. And what happens here is you start getting the narrative that the Fed got it wrong and the White House was right. And so once you start thinking of that narrative, it's really propelling these rate cut expectations to now over 75% of an odds for a September rate cut.

And we should have more rate cuts also is what the screens are telling us this morning. Now, job growth is extremely important. It's obviously part of the dual mandate of the Fed. We focused a lot on inflation, a lot of the soundbites that we've heard from Fed Chair Powell were about inflation and how the impact on inflation could be transitory, maybe not as impactful as many people thought. But inflation nonetheless has been quite stubborn over all this timeframe. And now you've got the labor market that's cooling. And I think that's adding to this feeling that bond markets are gonna be bullish going into this new month that we're going into. And you can see that in the yield curve too. I think they did pick up a little bit after the press conference of Fed Chair Powell.

You did see yields of the two year, which is most sensitive to Fed policy, move up to about 4%. In the thought that maybe we're not gonna get the rate cuts that the market is expecting this year. But as soon as you saw this jobs number come out, which surprised the market, you did see a rally in treasuries. You see a see a rally in the bond market. And what's happening here is you're starting to see the two-year treasure note yield start to drop pretty significantly. 17 basis point drop right when the report came out this morning.

So the two year went from, as I said, close to 4% to now 3.79%. That's the biggest decline on the day of a job report released since 2004. So the market's looking at this data, just like the Fed is. The 10-year Treasury Note yield fell nine basis points to 4.29%. So those that we're talking about are gonna get 5% by the end of the year on the 10 year. Now you're looking at a 10 year at 4. 29%. So these numbers are pretty significant. This jobs report is very significant. I think it puts September squarely back on the table, obviously, but it does ask a lot of questions of Did the Fed get it wrong and have they been late to the game?

George Mateyo [00:18:24] Yeah, I'm not sure if we're going to say it's a slammed dunk case that we get a rate cut. I think you're right to say that the odds have gone up a lot, but we still have a lot of information to chew between now and September, of course. A lot of other things can come out of the woodwork too. And not least, which of course, inflation, where if that does stay somewhat sticky, as we saw this week, maybe that also gets the market on guard a little bit. But one thing we've often talked about, Steve, has this notion to do with frothiness and speculation. Some of these meme stocks that we talked about last week were all the rage just a few days ago. My guess is that they're probably coming off the boil a little this morning. But certainly if we kind of walked into this week we talked the fact that complacency was rising. And this job report didn't help it.

Stephen Hoedt [00:19:07] Yeah, I think you're right on that, George. I mean, at the end of the day, the last week of July marks a seasonal peak. August typically kind of chop a little bit back and forth. And then you look at September and October being historically. Difficult months for the market. So, you know, I think it wasn't lost on any of us that as we flip the calendar to August, the tape starts to get a lot more challenging. And we certainly got a bunch of data this morning that that's made it a more challenging market for us to navigate. I mean, I stare at my Bloomberg screen right now and I see a 90% chance of a rate cut in September being priced in to the short end of the yield curve.

The two years telling you the Fed's behind the curve. And I think that, you know, as we look at heading into the fall, I think it's becoming apparent to people that the administration, say what you want about them. And look, this week has been kind of crazy with some of the trade policy switches. I mean, the copper market falling the largest amount on record because you got a reversal in of policy there and we can.

George Mateyo [00:20:20] I was going to ask you about that, Steve. I'm sorry to interrupt you, but is copper, is that all tariff driven or typically copper is kind of viewed as a harbinger for the economy itself.

Stephen Hoedt [00:20:29] I think it was all tariff driven, George, because they had talked about having the tariff be on copper itself, and then they changed it to basically being on products made with copper. What I don't understand is, if you're trying to incentivize mines to be built in the United States, why you changed the policy to what they changed to, and it doesn't and accomplish what they said they wanted to accomplish in the first place. But my guess is that the lobbying of the companies that use copper was much more influential in the U.S. Than the mining companies in the US. So, at the end of the day, the policy was changed.

But my point is that they're... It was a crazy week for a lot of reasons, but to come back to the Fed, it seems to me anyways, that the administration has played this thing like a Stradivarius, because at the end of the day, Bye. If you look at the way that the terms are laid out for the Fed governors, President Trump would only get one pick to pick another member of the FOMC. Even if he -

George Mateyo [00:21:53] One pick plus the chair, right?

Stephen Hoedt [00:21:56] Well, he can pick the chair and the chair can either be a new person or it can be somebody who's there, but he only gets to put one new person on based on the way the Fed chair or Fed governors come out.

They have 13 year terms, they're staggered every two years. So basically, you can't have a president replace the entire FOMC is the way that it works. Right? So, there's some longevity there, but at the end of the day. Because of the way that Chair Powell has maneuvered here, and the fact that Waller's dissent looks spot on, in terms of the call on the labor market being weaker than what the data was showing and the revisions coming out in favor of that today, it looks like there's a higher chance that Powell would end up resigning instead of sticking around as a governor after his term is up.

The administration appoints a new chair, which they likely will do. And that would give President Trump a second bite at the apple in terms of appointing another member of the FYMC. So I think that the way that this looks like it's playing out, it couldn't have gone any better for the administration. Albeit, I think they do want to see the economy stronger than what it is and the labor market stronger. But from a policy perspective, It really does look like they've got call right here and that the Fed is, you know, to use the phrase that the President is using that they're too late on this.

Brian Pietrangelo [00:23:47] Interestingly enough, there is no Fed meeting in August, so we've got the six weeks that takes us to September 17th, but there is a little bit of a difference about midway through that point where the Jackson Hole Symposium gets a lot of coverage and Jay typically speaks at that conference. So we'll see what they have to say there. We'll also get a couple more inflation reports and we'll get another jobs report at the beginning of September. But before we close, Steve, how about what's happening with earnings in the second quarter and some this week?

Stephen Hoedt [00:24:14] Yeah, you know, it's been a busy week, very busy week for earnings and the major tech companies reported. The reports have been mixed, I think is the best way to put it. Microsoft and Meta had reports that were very favorably received by the street yesterday and Apple's report was kind of, And you've got the market kind of looking at things today, going, okay, is there anything else that we need to think about here? So I look at it, Amazon also was a little bit weak. So it's not been across the board strength for the MAG-7 in terms of the reporting impact.

Very clearly, the AI theme remains front and center in terms capital spending and the underlying situation in terms of earnings growth in the economy, haven't seen any change in earnings revisions coming out of this. It still looks fairly good to us. But again, I think that it's a choppy tape as we head now into August and the early fall.

Brian Pietrangelo [00:25:27] Well, thanks for the conversation today, George, Steve, Rajiv, and Cindy. We appreciate your perspectives. And before we close the podcast today, wanted to give you a reminder that we are having our Key Wealth Institute National Client Call coming up on Tuesday, August 19th, 2025 at 1pm Eastern, where we're going to give an update on the implications for planning purposes of the One Big Beautiful Bill Act with some of our experts from the Key Wealth Institute.

So Tuesday, August 19th, 1 p.m. Reach out to your advisor or contact if you haven't received an invitation. So thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to the 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 [00:26:33] 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 [00:00:02] 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, July 25th, 2025. I'm Brian Pietrangelo, and welcome to the podcast.

Unfortunately, this week marks the death of some pretty big music icons in the world. We go from opposite ends of the spectrum on the music genre scene, first being Ozzy Osbourne, who was a pioneer of heavy metal and had a number of bands and great songs in the mid-90s and ultimately just a great talent. Similarly, but on the opposite side, we have jazz musician Chuck Mangione, who was ultimately famous for a lot of the music that he did produce in the 1970s. Including a number of great hits. So again, passing of the two legends in both areas of the music genre.

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, and Steve Hoedt, Head of Equities. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

Taking a look at this week's market and economic activity, we only have two economic releases for you this week. It was a pretty light week. We'll make up for it next week with some heavy different releases, but for this week, pretty light. First, we'll talk about the initial unemployment claims report for the week ending July 19th and it came in at 217,000, which was down 4,000 from the prior week and has been very stable and on the decline the last 3-4 weeks, so good news there in terms of the report for the robust employment market. And second, overall existing home sales fell 2.7% in the month of June to a total of roughly 3.93 million units. Again, the existing home sales has stalled a little bit as we have talked about many times on this podcast over the past six months or so, given the fact where mortgage rates continue to be and the unwillingness for owners to sell their home and then take on a mortgage rate at a higher level. So we'll look at that on an ongoing basis.

Other notable news for the week is the European Central Bank or ECB did pause their cutting cycle after cutting significantly, roughly eight times. And that's at 2% for their rate. So it will come into play as we talk about the Federal Open Market Committee meeting next week and Fed policy decisions, just as it compares to what's happening in Europe. Also speaking of Fed policy, but not really policy, President Trump visited the Federal Reserve building renovation and had a conversation with Jay Powell just yesterday. So we will talk about that with our panel today to get the reaction.

And speaking of President Trump, we will also cover ground relative to an update on tariffs from George. And so we'll start with that conversation right now. So George, the second extension of tariffs is coming up next week on Friday, August 1st. So in terms of some progress made with the EU and with Japan on rates maybe near 15%, where do you see that going? And then also on the Fed independence conversation that we've been having along with the visit of J. Powell by President Trump. What would you characterize it as, one end of the spectrum or the other? Do you think it's on the road of a crazy train, or do you think it maybe feels so good? What are your thoughts, George?

George Mateyo [00:03:52] Well, Brian, I guess it's a bit of both, right? I mean, things do feel a bit crazy these days still, but the market's feeling so good, to use your pun a little bit more, in the sense that we're still floating right around all time new highs.

I think just taking a step back, though, with respect to the tariff situation, it was notable what happened this past week in the sense that the U.S. did reach some agreement with Japan. That was kind of a major development and that side. And I think it's probably fair to say that the step down from what was feared in terms of the overall tariff rate to what is more reality seems to be pretty palpable and, like you said, feeling good news around that situation as well. More specifically, I guess the deal was kind of around a 50% tariff. I think there were some concerns that those tariff rates might be as high as 25%, particularly related to the auto sector, and that's a pretty big sector in terms of exports from Japan. So I think we've kind of seen some easing there when we go down from 25% to 15%. That's a good step down, and it only kind of modestly adjusts the overall tariff rate, which is something we've tried to focus on a little bit. Around the overall impact, broadly speaking, economic-wise.

So again, the overall tariff rate, it's kind of interesting, I guess, Brian, in the sense that the tariff rate began this year around two, two and a half percent or so. It got, I guess there were concerns anyway, it didn't really get to that level, but there were some concerns that that rate might spike up close to 25% or 30%. And when you kind of put that into the sausage maker, I guess you could say, you can generate some pretty bad outcomes for the economy. I mean, when you take tariffs up that high, the models suggest that you probably see economic growth slow quite notably, and you'd also see inflation pick up. And so we've kind of stepped down from that 30% to something kind of in the mid teens and the markets taking that is good news that the elevator rate of 30% is going to be less than half that or roughly half that at 15%. So again, it's still come down quite a bit, but it's so elevated, right? We've still seen kind of tariffs move up from 2% to 15%, which again is a pretty notable step function up.

But nonetheless, based on some of the headlines and based on what we've seen so far from corporate earnings. Most of the companies seem to be drawn to that. And that was one of the wild cards that we also had to kind of factor into this tariff situation is that nobody really knew exactly what the rates would be. We still don't. They're still very much a moving target. And next week, of course, will be a big week to watch with respect to what happens with China. But once we know, once we think we know the rate, we still don’t know exactly who's going to pay those tariffs. Will it be the exporter? Will it the importer? Will it pass on to the consumer? And frankly, we just don't know. So there's a lot of variables. And as we've tried to suggest for much of this year, because of these multiple variable dimensions, you know, it's really hard to put a forecast together and set a range of forecasts is probably a better way to think about this.

But nonetheless, the economy seems to be kind of chugging along. We're going to get, of course, some key readings next week. I think that's going to play into what the Fed might do as well. But I think next week, just to remind our listeners, of course, is going to be jobs week where we're going to get a lot of fresh data on the job situation. And by all accounts, it could be a pretty decent report in the sense that we haven't seen a significant slowdown. We've seen some slowing, but it's not been a big slowdown in the overall economic numbers as relates to jobs. And that's important because as long as the labor market stays healthy, in our view, the Fed probably stays on the sidelines and they don't have to cut rates. Now, you'd be kind of curious if we've got a stronger than expected print. I think the overall estimates right now are around 100,000 jobs being created for the last month and that's a pretty decent report. But if it peaks up more than that, who knows? We'll have to see what that means if we get that number.

But nonetheless, for now, it seems like the economy is still quite resilient. Some of the survey data is actually kind of turned slightly better. It's not gotten worse, which is good news. And again, on the earnings side, we've seen companies continue to exceed expectations. Recognizing, of course, that the bar was pretty low coming in this quarter. But overall, the numbers seem to be pretty decent. I think that's my read, Steve. I'm not sure if you've got anything to add, but I'm kind of curious to get your thoughts on kind of where we are from the equity markets perspective, and what you’ve seen so far as relates to corporate earnings.

Stephen Hoedt [00:07:58] It's the middle of summer, George. So while there's doldrums starting to emerge, there definitely is information content and some of what's going on in the market. You know, the market, we've talked about it almost every Friday for the last couple of months, but another Friday, another set of new all-time highs this week for the S&P 500. You know, there's some stuff under the hood that I'm watching, and I would tell you one of the more important ones is the fact that the equal weighted S&P 500 is less than half a percent or so away from making a new all-time high itself. And we've had a lot of talk about how the market's been concentrated, it's all the mega cap tech stocks that are driving this, and all that kind of conversation. Once we see the equal weighted S&P 500 confirm the cap weighted S&P 500, it kind of obviates that argument that people have been making about this being just a super concentrated market. So we're within a hair's breadth of seeing that happen. So something to watch as we head into the end of this month.

You know, we've talked also at length about how earnings higher equals stocks higher. And when you look at the S&P 500 forward 12 month earnings three months ago at the lows in April and early May for the earnings line, we were at about $274 a share for the S&P 500. As of today, we've made a new high for the year, we're at $284. So we've seen earnings recover 10 bucks over the last three months. So we had the kind of perfect thing for equity markets where we've seen the multiple move higher because we've had the multiple go over that same period of time from the lows that we saw back in April around 18 times up to a little more than 22 times for the PE multiple. But we've seen that happen on expanding earnings, which when we talked earlier this summer about what do we need to see to have the market have a good second half of the year, it really was that we needed to see corporate earnings come through to the upside because valuations were so extended. And we are seeing that as we come through earnings season and now guidance seems to be driving that forward 12 month number higher. So that's something, again, to continue to watch as we head through the next couple of weeks as we get through the rest of the teeth of earnings season. But right now, we don't see anything there that looks like it's going to derail the bull. There's been some reemergence of some of the meme stock stuff. I think that there's concern that we could start to be getting a bit frothy again.

George Mateyo [00:10:52] By the way, Steve, I'm sorry to interrupt you, but what's a meme stock? I mean, just for our listeners, I don't know, there's not an index, right? But there's a basket of these stocks that are trading, you know, I just pulled up this chart and some of these stock dropped north of 100% in just a matter of days. So what's a meme stock.

Stephen Hoedt [00:11:06] Yeah, it's like it's a stock, George, that becomes popular on message boards like Reddit and other places and all of a sudden a bunch of what I guess you would call quote unquote Wall Street bros would go in and start buying call options on it and it causes crazy price action. And they typically are lower priced securities and securities that are easily movable with retail flow. So I would tell you, look, I think it's something to pay attention to, but let me give you some perspective.

So, there are a couple of these indexes that the broker dealers have put together to track the price activity in this stuff. One of them is a non-profitable tech index from Goldman that I watch. In 2021 when this stuff really was at the peak of its froth, from then until the low in 2022, this index fell by almost 80%, okay? So it rose from an index level of a hundred to over 425 in the span of less than a year and then collapsed over a 18 month period all the way back to a hundred again, essentially. That's been going sideways for the last three plus years. It's up nicely this year and it's up off the lows. It's up 50% or almost 100% off the 2022 lows. It's up about 70% off of the lows that we saw here this year in April. But to give you some perspective, it's still down almost 60% from those peak levels that we saw in 2021.

Something to pay attention to, yes, when you get this kind of activity, it's clearly not a sign that the animal spirits are not there in the markets. But, you know, we look at a whole host of other indicators too, we look at a bunch of bull-bear sentiment indicators that come out from a couple of different survey firms, those are firmly entrenched in the middle of their ranges. Typically, those indicators only matter at extremes. The one that I would tell you that does give me a little bit of pause in terms of understanding that there is some complacency that's built into this market is the five-day moving average of the equity put call ratio, which remains down at levels that suggest complacency. So when you put that together with a little bit of this meme stock stuff, you do see that there's some froth that's building into this market here as we hit new highs and head deeper into the summer. And we've talked that maybe the market might be due for a little of a pullback or reset or whatever you wanna say, mark some time as we head into the fall because as we sit here today, this week actually marks the seasonal peak for the month of July, and July's the strongest month of the year in terms of market returns now, better than December even. So, I would tell you that as we head through August, typically you get follow through in August from July, but then September and October are notoriously difficult. And there's plenty of policy reasons to think that the market will go through some kind of a period of digestion as we head into the fall.

George Mateyo [00:14:32] No, you're so right to point that out, Steve. And it's not lost on me that we are kind of doing that that tipping point or that seasonal tipping point anyway, where things get a little less attractive based on historical trends. At the same time, you mentioned some of these policy issues, two of which that jumped in my mind, of course, are what might happen in Congress. There's still a chance, I guess, I don't know how big of a chance it is, but there's a chance that we see some type of government shutdown in September. That's something the market's probably not thinking too much about just yet. And then secondly, I think it would be a very interesting meeting for the Fed. You know, I looked this morning and just kind of was curious to see that the expectations for the Fed to do their thing this month are pretty much zero. I think there's about a 2% chance that the Fed will cut when they meet next week. But then again, if you look at September, it's more than a 50-50 chance that they cut. And I think there's going to be probably a lot of consternation around how the market is going to price that risk as we come to September.

Stephen Hoedt [00:15:24] George, you know, though, talking about memes and talking about the Fed, I have to say the biggest winner of the week this week was the Internet with Trump and Powell wearing the construction hats. I mean, I've seen so many screen grabs of that in the last 24 hours. It's just - it's just priceless.

George Mateyo [00:15:41] Yeah, well, it's not lost in me that, I mean, he's a former real estate mogul or I guess developer, I guess I should say, right? So he's got he's got the hard hat probably from past projects that he could just kind of pull out of the closet. So, yeah, it kind of curious to see that. Interestingly enough, I think it does kind of kind of raise the specter that maybe there's some risk that Powell might be removed, quote unquote, for a cause using air quotes there. But it remains to be seen, you know, actually how that plays out. Of course, at the same time, he said the president said that he doesn't intend to fire Powell. But, you as you pointed out, you see those images, you can't help but wonder what's behind the scenes.

Brian Pietrangelo [00:16:15] Steve, one final question for you as we talk about tariffs and trade bans, we don't typically talk about individual stocks and you do own Nvidia in one of the portfolios that is a pretty high-stature stock. It seems there was news that the trade ban on China was lifted for the Nvidia H20 AI chips. What are your thoughts on that?

Stephen Hoedt [00:16:34] Look, I think that AI and the chips are a negotiating tool that we have to be able to use with our trade partners and access to those. And it just seems that the reality is that there are enough workarounds that the Chinese have that prohibiting the sale of those chips is not necessarily going to stop them from developing anything. So why not use the chip? I think was the negotiating chip was the idea. So I think that at the margin, it's positive for U.S. technology stocks, but I don't think it's anything that the market got too crazy about.

Brian Pietrangelo [00:17:24] Great. Thank you, Steve. And finally, George, always look for your closing remarks on thoughts for investors as we head into the second half of the year.

George Mateyo [00:17:32] Sure, Brian. So, I think we were right to point out some of these policy, I don't know what you would call them tailwinds and headwinds and so forth that that really was kind of dominating the market narrative for the first half this year. It feels like there's some sliding ever so slightly, but really haven't gone away. So again, I would kind of caution our listeners not to get too bullish, but also not get too bearish either. And in a sense that there are some puts and takes on both sides of the coin as far as I see it. And so again, we'd probably just continue to recommend being balanced towards risk. When Steve talks about meme stocks, to me that really kind of thinks more, that to me strikes me more as momentum and probably speculation as opposed to pure investing. And our take is to have a long-term perspective and really invest in quality companies at reasonable prices. And I think that strategy usually plays out best over the long run.

Brian Pietrangelo [00:18:21] Well, thanks for the conversation today, George and Steve. 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 [00:18:56] 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 [00:00:02] 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, July 18th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. With that, I would like to introduce our panel of investing experts, here to provide their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions, please reach out to your financial advisor.

Taking a look at this week's market and economic news, we've got four key economic updates for you, and we will begin with probably the most important read for the week, which is the inflation update as measured by the Consumer Price Index measure of inflation. And both came out very hot in terms of updated reads from prior months. So for a month over a month on all items over CPI, for the month of June, a 0.3% increase, which was higher than the prior two months. And if you exclude food and energy, which is core inflation, it's at .2%, which was also heading in the wrong direction, which it was up. Then we take a look at the year-over-year numbers in the same vein, and June was also higher at 2.7% year- over-year for all items and 2.9% for core excluding food and energy, again, which probably the most important number as the Fed does look at some of these numbers relative to core inflation. And it is higher than the previous three months at 2.8%. Now, this is important because the Federal Reserve does meet at the end of the month on July 30th, however, we will get the second type of inflation report later on in the month known as PCE inflation.

Second, we had the advance number for retail sales, which is a proxy for the overall spending, one of the numbers we take a look at for the consumer. And retail sales for the month of June 2025 did come in in a positive manner at 0.6% positive for month over month advanced monthly retail sales. Now again, this is important for two reasons. Number one, because the prior month in May was a significant decline at minus 0.9%. And it had begun to give us the question as whether they were advanced buying in terms of pre-buying before tariffs or if this was indicating a slowdown in the overall economy relative to consumer spending. So, to see a positive 0.6% in the month of June was a good number.

Then third, on the other side of the economy, when we look at manufacturing, you can take a look at the industrial production report, which also was pretty good for the month of June, and it came in at a positive 0.3%. Now that's good because it's headed in the right direction in a positive nature. It's also good because the prior two months in both May and April were at roughly zero, and March was also at a negative 0.3%. So we reverse the prior three months, March, April, and May, that were negative or even and come to a June number that was a positive number at positive 0.3% percent, again, headed in the right direction for industrial production.

And finally, the fourth data point for you this week is an update on the Federal Reserve's Beige Book Report. And again, reminder for everybody out there as our listeners, the Beige book report comes out two weeks in advance of the next upcoming Federal Open Market Committee. And in this case, it's two weeks prior to the meeting coming up on July 30th. The report did show that overall economic activity did increase slightly from late May through early July with five out of the 12 districts reporting slight or modest gains, five had flat activity, and the remaining two districts noted modest declines in overall activity. Now this was a slight improvement over the prior report, however, uncertainty did remain elevated, contributing to overall caution by businesses.

So with that report, we add to the equation that when we come up with the Federal Reserve meeting on July 30th here, it will be very close to a number of items, those being number one, the extension or the second extension of the tariff pause by President Trump extended to August 1st. So that's right before that. Then we also have PCE inflation coming out after the Federal Reserve Open Market Committee in two weeks. And then on the Friday of the same week, we get the employment situation report relative to labor. In addition, there's a lot of rhetoric between President Trump and the standing of Jay Powell, the Federal Reserve chair. So we will go right into our panel today to Rajeev to get his thoughts on the upcoming federal open market committee. What are the chances of a rate cut and what are the chances of President Trump taking some type of action on Chair Powell before May of 2026, when his term is up, Rajeev?

Rajeev Sharma [00:05:08] Well, Brian, the June CPI data came in a little hotter than expected. And now once again, market expectations for rate cuts get recalibrated for this July 30th FOMC meeting that's coming up with the annual rate moving away from the Fed's target, which is 2%. And now that's not really a recipe for a July rate cut, and I don't think anybody's expecting a July cut. So currently market odds at July for a cut stand around under 5%. So you might as well discount all of that. But the Fed is likely to stick to this narrative of a wait and see approach, which they've been doing for a long time. And now they're gonna point to stubborn inflation and a resilient labor market. Fed Chair Powell is likely in his press conference gonna reemphasize the importance of data dependency. And the latest CPI does not really warrant the Fed to be preemptive with rate cuts. They're not gonna try to do a policy error here. They're going to keep to their guns and kind of say, okay, we're not doing rate cuts until we start seeing inflation move towards their goal. Eyes right now are back on the September meeting. Market odds right now for a September rate cut are around 60%. But if we see inflation continue to accelerate for whatever reason, whether it's tariffs or whether it is wage pressures, the Fed may decide to postpone that rate cut as well. And now there's a growing contingency that's thinking that maybe we don't get a rate cut into the fourth quarter or maybe even into 2026.

So how does all this impact the bond market? If you look at the yield curve and the way it's been behaving in the last few weeks, the front-end yields have been moving lower at a faster clip than longer end yields. And that is the steepening trade. Front end yields are most sensitive to Fed policy while longer ended yields are more sensitive to economy and inflation. Investors who placed the steepening trade early last year or late last year into this year have benefited from this trade from the continuing steepening of the yield curves. And we have also taken part of the steeping trade We don't believe that this time it makes any sense to really add duration to our portfolios. You just are not being compensated for that kind of interest rate risk to go further out on the curve. As we look closer at the 10-year, right now we remain pretty far from 5% levels. Many people thought we would get to 5% on the 10-year this year, that did not happen. It happened once and it came right back down. There are several reasons for this actually. You have a dovish Fed; they're still projecting rate cuts. The last projections were that two rate cuts for 2025. So as long as that's still there, you're not gonna see the 10-year really gravitate to 5%. Also, front-end yields have moved lower and that's put a lot of pressure, it's reduced the pressure on longer-term yields like the 10-year. The markets continue to price in easing, not tightening. And that's the natural pull down of the yield curve. And we're gonna see that continue for, I would say in the near term.

But there has been a lot of uncertainty in the market. We've talked about uncertainty before. But now the uncertainty has become a very different color right now. And you have, it's all about really the future of the Fed Chair Powell. So, we heard the news this week that Trump has been contemplating firing Fed Chair Powell. It does bring into question the independence of the fed. In my personal opinion, if this were to happen, you would have the potential for a very disruptive move in the markets. Trump has pretty much backtracked from some of his rhetoric later this week and said it's highly unlikely that he would fire Powell unless it was fraud. And I think this may have a lot to do with legal constraints that are involved here, potential market fallout. But the bond market is taking all this, in my opinion, in stride. If you look at the move index, which is a gauge of Treasury market volatility, it spiked on July 16th, right when the news came out that Trump may fire Powell. Intraday moves on the move were pretty significant, but then they came right back the next day. And I, and I think that shows a lot of the resilience of the bond market right now. If Powell were to be removed, it could undermine the confidence of the Fed's independence, as I mentioned. It could lead to higher term premiums and a steeper yield curve. But if we're looking for follow through volatility from all this noise that we're seeing in the market right now, it did not happen. The MOVE index actually came back and it's kind of been a little more stable, if you will. Now, even with all this noise out there, I think that if you think about who would take Fed Chair Powell's position after he leaves, or after he has exited, it would still be somebody in the market's opinion that would be somebody dovish. So, it's still putting pressure on the front end that we would have rate cuts. Whoever gets into that seat, it's most likely that they would be a dovish Fed member and that person would advocate for more rate cuts going forward. So, I really think that all of this is playing into the market. If you look at the economic data, you don't think that we should have rate cut right now. If you're looking at the political uncertainty that's happening right now, it keeps rate cuts still in play.

George Mateyo [00:09:56] So I think that's a fair characterization, Rajeev. I think it is important to note that during the, I guess, on again, off again, market reaction to what happened, I guess on Wednesday, when this rumor started to really take hold is noteworthy in the sense the market did reverberate a little bit. You know, we saw yields jump up a little bit. We saw equity markets sell off and people were kind of a little bit panicked at the time, although it wasn't a full-fledged panic, to be sure. But I think we do have to be careful of this. And you pointed out the fact that if there are grounds for removal that Trump would cite for removing Powell early, it would be this notion that he's committed some kind of fraud. And that of course is, you know, a pretty tricky definition and a needle to thread. But I think overall it can be somewhat disruptive if not careful. And I think the bigger consequences I see is, you know the market's going to react how it's going to react in the short term if this does happen. It's highly likely that Jay Powell will not be reappointed for another term. So, I think the market's kind of already discounted that to some extent, but the question is who comes in next? And you're right to point out that that's going to be something closely watched once maybe some short-term volatility takes hold, if this change is more abrupt in nature than anticipated. And I think there are consequences for that.

In other words, when we saw this in the past, and there was a little bit of precedent here, I think back in the early 70s, when President Nixon at the time was very critical of the Federal Reserve, and frankly, all presidents in the modern era have been critical of the Federal Reserve at one point or another, irrespective of Republicans or Democrats. I think most presidents want to see a stronger economy for obvious reasons. And sometimes, you know, the Federal Reserve has to go against that pressure. But in the case of Nixon, I think it was interesting in the sense that the Fed did acquiesce a little bit. I think they cut rates, maybe roughly 200 basis points or about two percentage points, if I'm not mistaken. And soon thereafter, inflation took hold maybe a year or so later. And there were consequences for that. That was the time in the early 70s where inflation really ramped up, growth slowed, and we had this environment of stagflation, which the market didn't really respond too kindly towards. So, I think there are some consequences of this.

I think there are parallels that people are trying to draw between what's happened in emerging market countries where it's been a little bit more commonplace. I'm not sure we're emerging market economy by any means, but nonetheless, I think there are some precedents that give people pause when thinking about what could happen next there. So I think we have to keep our eye on this.

I think with the knowledge the markets seem a little bit complacent towards risk in general as we kind of go through the summer, there are some good news stories to be sure. And you pointed out some of those where inflation is behaving a little better than expected. To be sure some of the numbers behind the numbers, if you will, have shown some stickiness towards them. And maybe, again, maybe those are tariffs that are starting to kind of come through. The impact of tariffs is starting to come through on the inflation side. But we also saw pretty decent numbers on the claims numbers where people that were filing for unemployment insurance went down last week, which is certainly welcome news. And then thirdly, retail sales bounced back up, which I think is something that Brian mentioned, as well as being kind of a harbinger for maybe future growth in the economy. So overall, it seems that the economy is doing okay right now. It's not running away on the upside. It's clearly a little bit on the job market, but not really too much on the downside. So maybe interest rates probably are where they should be right now, all else equal. I think the other thing, Steve, that caught my attention is just the unprecedented rise of a certain number of tech stocks. And now we're back at peak concentration levels where a couple of stocks now are representing almost 40% of the index again, as measured by the S&P 500. So are you, Steve kind of seeing any read through with earnings so far, or how are you thinking about just this level of concentration in the equity market today?

Stephen Hoedt [00:13:29] Well, George, I mean, it comes down to the market yet again. Another week passes and another set of new all-time highs, right? And, you know, we've kind of been talking about this for a while, that the setup was really favorable for stocks. Through the month of July. Post-July, it gets a little bit more dicey, but likely August should be okay too before we head into the typical seasonal swoon in September and October. These new highs, as you mentioned, have been driven in large part by both the economic data coming in in a positive fashion, whether it's inflation, or growth, or the tariff impact, or what have you. The equity markets have been willing to look on the bright side here lately. And earnings have been coming in good from the early reporters. 88% of the companies that have reported so far have beaten expectations. There have been a couple of notable laggards in healthcare and consumer staples, but generally speaking, we've seen earnings get off to an upbeat start and that's helped as a tailwind as well. So, when you've got economic data coming in favorably, you've gotten earnings coming in favorably, and you've got the macro backdrop being, charitably less bad, but really actually pretty good. You know, the market, you know, the Powell business on Wednesday, I would just chalk up as a kerfuffle. And we're on our way, you know, continue continuing, continuing higher here until proven otherwise. I mean, it's going to take something significant to derail the rally in this market is my view at this point.

And, you, know, when I look at the concentration you're right. I mean, I looked at the S&P 500 this morning on my Bloomberg terminal, and almost 34% of the benchmark is tied up in tech. And you've got - if you want to call it tech plus - if you strip out some of the stuff that's in comms services and consumer discretionary, namely things like Amazon and Netflix, what have you, you're up over 40% very clearly, but I would tell you that, you know, when you look at the, the margins that these companies are, are putting forth and the earnings power that they have, um, you know that there's a reason why we've seen these firms performed really, really well over the last 10 years. And they've kind of acquired that market share within the S&P 500, not by default, but because they've seized it. So yeah, I think that while we're not as used to seeing markets this concentrated in the U.S., if you look around the world, there are a lot of benchmarks that have concentration. And I think when you've got companies that have done what the Mag-7 have done in terms of growth and profitability, it's hard to argue against it. I think it's something that we're having to get used to, and I don't think it's gonna be anything that goes away anytime soon. So, you know, I think that the real question that we have to ask ourselves is, okay, if these ones are gonna trade at a premium, what's the right multiple for all the rest of this stuff? Um, and, and what are the prospects for all the rest of the stuff? Cause if you look, I mean, the market is basically trading those seven stocks at 32 times, the rest of the market's trading at 21 times. And the average for the market is what, 23, 24 right now. I think we're getting close to it. So., I think that the question is, do you start to go through that exercise that I just went through and strip that out and try to understand what the right multiples are for the different pieces of the market as opposed to looking at the market, as a whole, because of that dominance. So, I think we're all going to have to start to look at things through a slightly different prism going forward.

George Mateyo [00:17:36] Do you think, Steve, that there's any risk with, I guess, antitrust or regulatory concerns? I mean, I think the last time we saw one stock jump up to 70% of the overall market capitalization of the broader market was I think it was either IBM or AT&T. And I think in both cases those companies were essentially broken up a few, maybe months or quarters years later. I forget exactly how quickly that breakup occurred, but there wasn't any trust backlash when these companies get to be so powerful that you see some outside force steps in. Is there any risk on the horizon with respect to those concerns?

Stephen Hoedt [00:18:09] So when I look at the various Mag-7 names, look, the government has had Microsoft and its crosshairs at different times over the last 20 to 25 years and hasn't been able to do anything to the company's business model. Essentially, all their efforts have failed. When I look at the names like Nvidia, I don't really see a case for antitrust with Nvidia. The ones that I do think could come under some pressure are the names that are linked to social media, advertising, that kind of stuff, namely the the Metas and the Google/Alphabets of the world because, you know, the government has been very outspoken about its approach to those ones. And you could argue that it's easier for the government to point to pieces of those businesses, whether it's Instagram with Facebook or whether it is YouTube or the Android operating system with Alphabet, pieces of those businesses could be broken off by the government. And I don't think it would destroy the core business. How do you go to an Nvidia and break off a piece of its chip business? Like, I don't know how you do that. Like they're just dominant in that market right now. Nobody else has stuff. I don't know what you do. I don't know what the solution is to their market dominance. I would argue that if you look over time, a company like Broadcom in the semiconductor space, which is creeping up to that Mag-7 level, has a tremendous opportunity to kind of take share in custom silicon. And we see custom silicon taking more share relative to just buying chips from the Nvidias of the world as we move forward in this whole AI revolution. So I think that that's probably more your natural market-based solution to the concentration issue in the chip space.

George Mateyo [00:20:19] Well, I think you're right to mention just valuations again. And then Rajeev would probably say the same thing, excuse me, with respect to credit spreads, where again, risk is pretty low and spreads are tight. So there really isn't a lot of fear in the market right now. And I think to some extent, you're right, Steve, to mention that valuations probably are a bit different today than they were in the past, in the sense that the broader economy today is less cyclical than it was in the past. You could argue that maybe just there's more stability in the economy. Maybe people take question of that, but certainly there's certainly more productivity the economy as a result of some of these things we've talked about. And we're also seeing probably more support for just equity markets in general from investor flows and some other things as well. So, I think from us, you know, it's hard to say exactly what could dent things. I think the recession risk has come down quite considerably. I think some of the trade tensions that we talked about earlier this year have not gone away, but I think they've ebbed a little bit and I think that they still could probably resurface at any moment. So, I think from our perspective, I think it's important to really remain balanced towards risk in general, kind of know what you own and why you own it. And then think about really just incorporating more diversification in your portfolio because there are things that could change at any moment. But being balanced towards risk in general I think is really the best tack that somebody could take with respect to their portfolio going forward.

Brian Pietrangelo [00:21:32] Well, thanks for the conversation today, George, Steve, and Rajeev. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So, reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

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