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, 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.

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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, 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.

Disclosures [00:21:27] 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 17th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. We've got a lot of news going on this week, so I'd like to introduce our panel of investing experts right away, here to share their insights on this week’s market activity and more: George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

Taking a look at this week's market and economic news, we have more news than the economic releases will provide because the government shutdown has continued into day 17 with no resolution in sight. So what that means for the government reports is that the Consumer Price Index was delayed, the Producer Price Index delayed, the unemployment claims report delayed, and retail sales data were also delayed. So, these are the normal cycle of economic updates we would provide to you this week, and they are delayed due to the government shutdown. We do have a couple items to share with you, however, that we looked at.

The NFIB, the National Federation of Independent Business' Small Business Optimism Index, for the month of September, and it declined two points to 98.8. This was the first decline in three months, though it remains above the survey's 52-year average. However, the uncertainty index as part of that report did rise seven points up to the number of a 100, which is the fourth highest reading in over 51 years. So calibrating that report in addition to some reports that KeyBank also looks at with regard to small business owners, the uncertain factor continues to grow with regard to employment, with regard taxes, with regard tariffs, with regards to a whole bunch of other things. So interestingly enough, we continue to monitor that as a real thing.

In addition, this week on Wednesday, the Federal Reserve came out with their Beige Book report, which, as most of you know, because we report on it almost every single time the Fed is meeting, it comes out two weeks in advance of the upcoming Federal Reserve meeting on October 28th and 29th in two weeks. The report covers the 12 bank districts in the nation, and the overall economic activity report changed little on balance since the previous report, with three districts of the 12 reporting slight to modest growth in activity, five of the 12 reporting no change at all, and four of the twelve noting slight softening. On the employment front, overall employment levels were largely stable in the recent weeks, and demand for labor was generally muted across the districts and the sectors.

In other news this week, we have the overall tariff spat a little bit with China and the United States this week We had a Middle East peace agreement this week as well Q3 earnings season is in full swing and we had a couple concerned comments about some Bankruptcies and the potential implications to the overall market in this regard. We'll touch on that with our panel today. So let's tee it up for George for our first question. Just get your overall reaction George on a lot of tremendous news this week that may have implications for the markets as well as the stock and bond markets in the economy which will touch on with Steve and Rajeev. But first, get your take. What do you think George?

George Mateyo [00:03:46] So Brian, I think in the absence of real good data, we're probably, as you mentioned, kind of wandering in the wilderness a little bit. You know, we're here day 17 or so, and to some extent it's kind of interesting to see that the shutdown talks are really falling off the front page. Maybe that just suggests this is gonna be a lot longer. Maybe it suggests that we're gonna be kind of grappling with this uncertain environment for quite some time. You know it seems like the market has just kind of moved on and maybe kind of overlooking it. The market's really kind of discounting that the Fed will be lowering interest when they get together in a few weeks. And that's all but a certainty right now. Same time, the market is processing data around earnings. And I guess roughly maybe 10 or 12 percent of the S&P 500 companies have reported earnings thus far. So it's still kind of early, but the early indications are pretty favorable overall. So the market's kind of taking that in stride.

I guess if we wanted to parse through some data, I think you could say that to the health of the consumer. So in my mind, one of the key things to watch and I think by all accounts, it's good. I wouldn't say it's really great, but it's good. You know, there's some anecdotes and say that spending data was a little weaker. I think we're trying to glean through some of the recent credit card spending and so forth. You can kind of parse out some information there. And it looks like there is some slowdown there, but not really a fall off. And maybe that's just temporary. Maybe that's seasonal. It's too hard to say. Um, but, you know, I was just in New York this past week and by all accounts, just the, the report from the street, which say to me that things are pretty healthy, pretty healthy hotels for full restaurants were packed and by all accounts, it seemed like activity was pretty brisk. Uh, so take that for what it's worth. But I think the consumer is going to be the key thing to watch going forward.

We have seen, again, some softening in the labor market, but not really a collapsing. Of course, the data that we all depend upon has actually been withheld a little bit, or it's just been delayed being released, I should probably say. But again, I think that's gonna be the key thing to watch going forward. So overall, I'd say things are probably in a pretty good place right now, but things are slowing. Valuations, meanwhile, are still pretty elevated, so we have some risk to navigate there just because of the fact that, frankly, because stock prices are so high and risk is pretty low. If you look at credit spreads and so forth.

But I think the key thing that also kind of happened this week of course happened within the regional bank sector. We had a big comment from a major CEO in the banking world that talked about cockroaches emerging where he saw some credit risk emerging. And there of course were two major credits that we’ll talk a little about. Our bank has not had any exposure to those. But I think to some extent, this is an institution, this is a CEO that has warned about things in the past that haven't really come to fruition.

But again, I think it's fair to say that, yes, credit has been pretty lenient in the past several years. There's been a lot of credit maybe underwrited that might be a little bit lax in some parts of the overall economy. So we have to be mindful of this, but I don't think this is systemic as yet. I don't think this a major economic event to the extent that we saw other credit events, other cycles take hold, but we can't ignore it either. So I think that's fair say that things are starting to kind of slow down a little bit. And once things slow down, we start to see some things like this emerge from time to time. But at the moment right now, I don't think this is a systemic issue or to cause major pressure in the economy and really kind of take the bull market down in a significant way. That's how I think about it, Steve. If you think about what's happening in the banking sector or maybe earnings overall, anything that you can glean through as you've kind of seen the earnings season play up thus far.

Stephen Hoedt [00:07:09] Yeah, George, you know, when you think about the, the banking and credit worries, I mean, I keep coming back to the whole idea that bull markets climb a wall of worry, right? There's always something for the market to worry about.

When you look at the, the situation in the credit markets, I always watch the high yield and investment grade CDX spread. Those are, um, very sensitive to movement in credit weakening, because they're credit default swaps. And we've seen a little bit of widening there, but not much at all, to be honest with you. Nothing like even the spike that we saw on the tariff-related news earlier this year. I see right now investment grade spread sitting at 54 basis points. We were as high as 80 when we were back in the teeth of the tariff situation earlier this year. So credit markets actually seem to be taking this in stride. Yeah, and if you look at the regional banks, they always kind of tend to amplify the concerns that happen at larger banks. And to your point, larger banks, there are some advantages there, no doubt, but this particular CEO who you're talking about loves to talk his book. So I think when you get into a situation where there's an opportunity to kind of, you know, try to drive people via fear to a larger place. You know, that's where we go.

So, you know, when I look at the market, you know, it's kind of been a week where we saw volatility pop a little bit earlier this week. We're at 23 on the Cboe volatility index. The long-term average is 19 and a half. We really don't think that the market though, you know, if you look historically, two standard deviations is up around 35. We're nowhere close to being in some kind of a volatility sell-off here. So it just feels to us like we're in mid-October, what's interesting to me is we're ending the seasonally weak period materially higher than where we were when we began the seasonally weak period. Keep in mind, we talked on these calls about how the seasonally weak period runs basically from, let's say, the second week of August through the second week of October, and right about now is the seasonal trough for the year. And we're materially higher over that window. And as I've said on these calls before, when the market doesn't behave as it's supposed to during a seasonal period, pay attention, because it tells you something's going on. And our belief here is that when wall of worry provides us with a really nice backdrop to focus on the strong earnings numbers that are likely going to continue to come through as we get through Q3 reporting season which ramps in earnest over the next couple weeks. And you're looking at a bullish backdrop for the market into year end.

George Mateyo [00:10:33] So, sticking with the credit theme, Rajeev, I guess, would you summarize it the same way or how are you thinking about what's happening in the credit space in the past?

Rajeev Sharma [00:10:41] Well, you know, George, the talk about loan frauds tied to Zions and Western Alliance Bancorp, they, I do believe that they did rattle some bond investor nerves, but it has not been a systemic event for bond investors. And actually credit markets agree. If you look at it, as Steve pointed out, investment grade and high yield CDS credit default swaps, they're, they are trading near levels that we saw back in June, but they're far from any crisis territory that we could be in right now. Any widening from record types, if you look at a chart and you just look at CDS charts or you look at spread charts, it might look dramatic, but in context they're not showing any contagion risk. If anything, they're reminding us that the market has been complacent. And so any kind of headline risk, it does show a little bit of widening and you do see that. So there are credit jitters in the market, but it's more like a stress test, not a systemic shock.

And the bond market, you know, this week showed some mixed performance. We did see treasuries and investment-grade corporate bonds rally, but high-yield bond spreads did move wider. In fact, high- yield spreads reached their widest levels since June. And this showed that the market's looking at this with a lens of some caution. You do have President Trump's calls for renewed tariffs. Investors gravitated towards safety haven assets like U.S. Treasuries. This moved yields lower and prices for longer duration bonds. We also saw increased demand for investment grade corporate bonds. New issue supply was muted this week. And I think that again, as to the supply demand technicals that we've seen in that market. So investors really want to get corporate bonds and they're willing to pay out for them. Even municipal bonds rallied as investors moved towards this flight to quality.

Now the ongoing government shutdown continues to support a rate cut later this month. Even as the market anticipates a CPI data release at some point next week. But I would add that we did get some Fed speak. In fact, we did hear from Fed Chair Powell. He emphasized balance sheet transparency. He also highlighted cautious optimism on growth. And then he also talked about a steady path for interest rates. So the biggest takeaway that I had from Powell's comments this week were that, you know, they want to get rid of quantitative tightening. They're going to stop the balance sheet runoff in the next coming months. But he also reaffirmed that the Fed is looking at two rate cuts for 2025. That's in line with what the Fed said at the last FOMC meeting. It's also in line with what the market expects from the Fed right now, two more rate cuts this year. So it's all good.

The market realizes that it's going to be a different Fed chair next year. It's likely going to a more dovish Fed chair. The short list that we have for the candidates. All of them seem to have an inclination towards more rate cuts or at least a prolonged rate cutting cycle. There's about five people that are on the shortlist right now. And all of them seemed to have that type of, you know, sentiment that we should have rate cuts. The final decision will be made by President Trump in early 2026. So I do think that a lot of things can move between now and then, but I do that right now you have a Fed that's in a rate cutting cycle and that's very supportive for the bond market.

Brian Pietrangelo [00:14:03] Before we close, one last question for you and then one final question for George. Steve, oil seems to be at a low here around $57 a barrel. Any read into that for implications into the economy?

Stephen Hoedt [00:14:15] You know, I think it comes down to the overall global economy being a little bit slower than what maybe people expected at the beginning of the year. So China has been very key to seeing where oil prices are going and their demand seems to be okay, but I think that the European economy and some of the rest of the economies in the world seem to be a little bit weaker. So, there's not maybe quite as much demand at the margin and that has given us the ability to see oil prices move lower. I know that it's certainly been a nice thing to see at the gas pumps here in Southeast Michigan over the last few weeks to see it drop below three bucks a gallon. I'm sure other places have seen similar moves. And to George's point earlier, any benefit that we see there accrues directly to the consumer, and it helps especially at the lower end. So, you know, that's something that as we head into the back end of the year, we'll have to see if it continues to play out.

Brian Pietrangelo [00:15:22] Thanks Steve. And finally for you George, in a week like this where we have tons of information and some jitters in the market, what are some good reminders that we have overall for investors?

George Mateyo [00:15:31] So, Brian, I think in terms of reminders to keep in line between all the volatility and the confusion and the uncertainty and the government shutdown and so forth, I think from our perspective, it's really important to take a long-term perspective. And thankfully, I think most people understand that, but I think sometimes we miss that in the short-term. But typically, if you can think more long- term, you tend to be better off. And a lot of the stuff that we're talking about on these calls ends up being noise. So I think we pay attention to some of the fundamental drivers, the fundamental underpinnings. We've talked about earnings. We talked about valuations. We've talked about other things that are really supportive of the overall backdrop. And we put those things together. Our view is really being balanced towards risk. And so you have a strategic allocation target usually when you set your investment policy. And I think in times like this, it's really to kind of use that as your north star to focus on that and really maintain that through thick and thin irrespective of what happens in the short term. So for me, it's like sticking to your principles, first principles first, and being diversified and being exposed to markets and at least stay in the market despite short-term fluctuations.

Brian Pietrangelo [00:16:35] Well, thanks for our 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.

Disclosures [00:17:08] 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, October 10th, I'm Brian Pietrangelo and welcome to the podcast. As we finish up our first full week of October, I am reminded that October is Breast Cancer Awareness Month, so if you have some time to take to encourage and support somebody that's being affected by this disease, please take the time to do so. And or more importantly, if you had the opportunity to help fund some of the charities that support breast cancer research, it would be tremendous. What a great cause. Now I'd like to introduce our panel of investing experts here to share their insights into this week's market activity and more. George Mateo, Chief Investment Officer, Steve Haidt, Head of Equities, and Rajiv Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com slash Wealth Insights including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic events, we have a very light calendar for the economic releases this week. In fact, there are very few in general. And also, because of the government shutdown, the weekly unemployment claims report that normally comes out on Thursday did not get released. So, for all intents and purposes, not a lot of economic data. We'll talk to Steve about the stock market and Rajiv about the bond market. But before we do that, let's get a take on the government shutdown update from George and any other thing that's on his mind right now for the week. George?

George Mateyo [00:01:58] Well, Brian, you're right to suggest that there isn't much official data. And it's kind of curious just on that point that I read last night, early this morning, that the Bureau of Labor Statistics, which is traditionally the arbor of mostly the most significant data, at least the data that the market seems to pay most attention to. The BLS, the Bureau of Labor statistics, again, was in the news last night and suggested that they might actually call some workers back to tabulate and finish the report for inflation. And that would probably be helpful, and I think there's some suggestions that they might try and get that done between now and not then, which is roughly when the time the Fed meets, I think. So, I think that'll be an interesting data point because the inflation numbers that we've seen thus far are still somewhat sticky. You're right, there's no official data, but there are some data points that are coming out today, later today here on Friday the 10th. Which could probably further validate the fact that inflation is not really going down and maybe going to be a thorn on the side of the Fed. We'll see, but I think nonetheless, the information that is coming out is somewhat sparse, but again, still pointing to some kind of inflationary stickiness, I guess. It's curious to me, though, I think we didn't, the BLS could have actually put out the report that focused on the labor market last Friday. I think the report was done by the time the shutdown started, but for whatever reason, they didn't choose to do that. But nonetheless, I think there are some things that we're probably kind of squinting at to try and glean some information from. On the labor side, though there's a couple of other survey data that come out. Some of these things are regarding private sector payrolls. Not just necessarily government data and so forth, but other things in the private sector that come out that track labor announcements such as layoffs. They track things like hiring and they track things, like wages. Again, the data sets are less robust. They're not really quite as deep and they're not as time tested as some of the other ones, but they all point to roughly the same thing, which is maybe somewhat convenient around the economic narrative, which again has continued slowdown, but not real obsession. So again, things are softening. And they're cooling, but they're not collapsing. And that's probably the reason why, one reason why anyway, the stock market hasn't had much of an issue so far. And one reason probably why the risk markets and the credit markets are also pretty stable. So, I think overall, again, we continue to think this is kind of a cooling but not a collapsing moment. We acknowledge that maybe the information on the inflation side is still somewhat sticky and that presents some of the challenges for the Fed. So, I guess, Rajeev, if you think about kind of that backdrop, what can you glean from the data that you're looking at in real time to understand maybe where the Fed might be heading?

Rajeev Sharma [00:04:35] That's a very good question, George, you know, the government shutdowns entering day 10 and the lack of data really has done much to dent the risk on rally that we've seen in the market. We saw the yield curve also flattened with the 10 plus year maturities outperforming the front end. So specifically, we did see the 10 year this week move lower by five basis points to four-point zero nine percent. So that indicates that buyers have been starting to step in and starting to pick up that 10-year treasury note. And that was something that I think a lot of investors are waiting for to see if those buyers would actually show up. And they actually did this week. Now there is some hope, as you mentioned on the data front, as you said, the BLS has recalled staff compiling those key inflation reports by month end that could really help the feds’ next move. But right now, if you look at what the odds are, they continue to favor two more rate cuts with 25 basis points by year end, October 29th is the next FOMC meeting. And right now, those odds are that we get a rate cut. At those odds standard about 95% right now. So regardless of the lack of jobs data, regardless of lack of data in general, due to the shutdown, the market still is gravitating towards two rate cuts by the end of the year. Now we also did get some other information this week that doesn't have to do with data, but it does have to do with the past and that was September FOMC minutes. And if you read through the minutes, there were no real shockers there, but I think it's worth mentioning some of the high points here. Did it really show that even though the Fed was somewhat divided, Fed members are somewhat divided. Most of them are leaning towards dovish stances. We have most Fed members supporting further rate cuts because of a cooling labor market. And most members noted that inflation is stubborn. We had most members supporting those two more rate cuts by the end of the year. By the end of the year, the vote was 11 to 1 in favor of the cut that we saw in September. But again, you did have. Note there that Stephen Myron dissented and he really pushed for a more aggressive 50 basis point rate cut, which he did not get. They also noted that the impact of tariffs on inflation has been pretty muted so far, but some members have voiced somewhat of a worry that the long-term inflation expectations could rise as we continue to be above that 2% target that the Fed has stated for themselves. Now we did have several Fed members come and speak this as well that also added to some excitement, if you will, in the bond market. We did have several Fed members come out and talk about monetary policy. We had Stephen Myron, Vice Chair Bowman. They were both pretty vocal. Stephen Myran focused on macroeconomic risks and the continued need for rate cuts, multiple rate cuts. And Bowman gave multiple speeches about banking challenges. So where do we really go from here? I think right now, you know, the market continues to believe we're going to get rate cuts we're on a rate-cutting cycle. So, no one's really worried about it. The fact that maybe it's going to be one cut that we saw in September and then a pause. Right now, I think everybody's really thinking that once the Fed is in motion, they'll continue cutting rates and also the expectations of that one rate cut per quarter next year as well. But we did get some ideas about who could be next as far as a Fed chair position goes. We all know that next year, Fed Chair Powell is going to be out and there's going to be somebody taking that seat. And right now, you know, you're, there's a lot of, yeah. Questions about who would really get that position. You know, there's a final list of candidates that I think the market's gravitating towards. Bowman's on that list, Waller's on the list. What's interesting is that Governor Bowman and Governor Waller are on the lists despite going against Myron and dissenting for advocating for a larger rate cut. So that's another signal to the market that Fed independence fears may have been overblown, and the bank is still operating independently.

George Mateyo [00:08:24] Well, if we flip over to the stock market for a second, I think, you know, you mentioned the word hope a couple of times, Reggie, if you hope for this, we hope for that. And certainly, there's a lot of hope in the market and. And oftentimes we talk about valuation, but just to help our listeners think about that, we oftentimes, for example, talk about the P-E ratio or the price-to-earns ratio. How much are you paying for a dollar of earnings? And right now, that multiple is pretty expensive where certainly individual stocks have different multiples and probably for different reasons, but the overall stock market right now, you're paying roughly 25 times for $1 earnings. And that's historically pretty high. I think you could also get a number of different ways. I think Warren Buffett had a favorite measure where he took, for example, the overall size of the entire market and then kind of juxtapose that against GDP. And right now, if you look at that ratio of the stock market to GDP, it also is quite expensive. In other words, the stock markets really twice the size of economy, I think, based on some of its metrics. And then lastly, Steve, I know you've paid attention to this thing called hopes and dreams, which is why I was tied back to what Rajiv said, where again, if you kind of extrapolate and kind of tease out a few fundamental drivers, if we look at the overall market and you can kind of understand that, yes, there are some earnings growth that are embedded in prices. There's a traditional kind of cashflow kind of component. There is certain amount of book value, so every company has got some candle assets to them. And then everything else is what I think one person called hopes and dreams. And that number of kinds of hopes and dreams that are in the stock market are really quite elevated, maybe historically so. So, I guess there's always this notion that markets can stay expensive a lot longer than people think. And again, as we've said in these conversations in other places, valuation itself is not really a catalyst for correction. But certainly, you know, as we think about kind of where we are on this AI build out, maybe there's a bit too much euphoria, but some froth going to creep in. But Steve, if you think about this and what you're seeing in the market, of course, you've got the history to draw from. Where do you think we are right now with this conversation around bubbles and stock market valuations overall?

Steve Hoedt [00:10:21] Think it's 1997, George, I don't think it's 1999 yet.

Steve Hoedt [00:10:27] And why does that matter? Why does that matter? Maybe not everybody might recognize that metaphor. So why does it matter?

Steve Hoedt [00:10:30] So, it matters because I think we haven't gotten the blow off phase of this yet. I don't think we're close. So, this has been a little bit different than the 90s, the late 90s setup because the earnings underlying it are real from these companies. Um, and there's, there's no doubt about that. The issue that I think that has started to creep into consciousness over the last month or two has been this kind of daisy chaining of vendor financing where you see OpenAI making an investment in an NVIDIA and then NVIDIA turning around and making an investment and Oracle and Oracle turning around making an investment in OpenAI and oh my, oh my it's, they're all a hundred billion dollars. It's the same hundred billion dollars getting passed around three different places. And oh, by the way, that hundred billion hasn't been earned yet. Where's it going to come from? You know, so like that kind of stuff is creeping into market consciousness. And when you go back and you look at the vendor financing kind of stuff that went on with global crossing and Lucent, for example, back in the late 90s, this gives me a lot of pauses going forward. Because let me tell you, those orders can just disappear really quickly when things kind of go sideways, if they ever do. Now, that said, I'm not going to tell you that this isn't real or important. I think that we need to pay attention to it and continue to watch it. And you never know what's going to happen with the stuff on the AI side. I do think that there are some hints that things aren't going as well as expected in terms of both the adoption and the productivity developments that companies could get from using these tools. It seems like right now the killer app is something that is mostly used by college students to do term papers and get them done very easily and efficiently. I don't know that that's the killer app that's going to be the thing for generative AI going forward. And so, I think that we've got a whole host of these things to deal with. And to your point, the market the market is certainly not cheap. But that said, you know, if we go through earnings season here and we continue to see earnings estimates move higher. And granted, that'll have to come on the back of the mag seven largely. It's hard to argue with a market that has an and a forward earnings line going straight up and to the right. And the market will typically not. Deviating too far from that and so you know it doesn't really surprise me to see the S&P 500 continuing to tag new all-time highs on a weekly basis.

George Mateyo [00:13:34] In terms of other things that are tagging new all-time highs, the price of gold continues to go to attention. And just to remind our listeners there too, we've had a view that gold can serve a role in a portfolio. It should be a measured allocation though. In other words, we wouldn't really back up the truck to make this the down part of your portfolio, frankly, because there are other things are probably more productive and probably more based on fundamental value, as opposed to maybe the price that somebody's going to pay for that. But Steve, Rajiv, as you think about the gold market and what that might be saying, it's curious that when the stock markets are at all-time highs, typically you wouldn't find gold at all-time highs either. Usually, gold works when things are stressed or maybe there's a lot of uncertainty. Of course, we are seeing uncertainty at many levels, but how do you think of the price of gold? Absolutely, Steve, and also again, relative to stock prices and other things.

Steve Hoedt [00:14:21] Well, I mean, if you look at it from the perspective of what's driving gold prices, I mean, the, it really does come back to this idea of this dollar debasement trade over a long-term time horizon. I'm not arguing that the dollar is going to go away in global currency markets and that kind of stuff short term or anything like that. But what we've seen globally is that we've seen a shift in global reserve flows from US treasuries to gold. So, global central banks have been using gold in lieu of treasuries for the last two or three years now. And that's what has really driven the rally in gold. It is not. Retail. I mean, I think that's really important. So, when you think about what gold could do or where could it go? I mean if the central banks are agnostic about price in terms of investing in gold because they're going to reinvest their flows there instead of in treasury markets, gold could go wherever it wants to go. Like there's no artificial cap on it. That said, you look at the way this stuff has behaved historically, you could easily get 10%, 15%, 20% pullbacks here, and it would not be a shocker. And we've seen a pullback in the last 24 hours. After silver spiked above 50, we've seen gold pullback below 4,000 again. So again, I think that the bias is to the upside as long as you've got these central banking flows coming in, in my view, but I expect that volatility is going to increase as we get the price moving higher. I'm curious to see what Rajiv thinks about the central banking angle to this.

Rajeev Sharma [00:16:17] That's a very good point, Steve. I do think that, you know, you can look at safety haven assets, and you can have that feeling that gold is a safety haven asset, but the central bank angle that you mentioned is a very one. And I do that if you really want to look at safety, haven assets and we talk about a government shutdown, we saw T-bills and treasuries rallies right into that shutdown. So, I think that continues to be the safety haven asset. I think gold at 4,000 is a resistance point. And we have seen a little bit of pullback from there. So, I feel that continues. It's very curious to me that silver has four-decade high price over $50. So, I think that's also getting a lot of attention. But really, I think that with the central bank’s involvement, they're going to continue to focus on treasuries. And I think the supply of the treasury market for the supply treasuries that's going to come to market is going to dictate where treasuries go. I do think that T-bills in the rally that we saw into the government shutdown, I think, that was indicative of where investors' heads are at, that we continue to favor treasurers in those kinds of scenarios. I'll see you next time. We've got to also think about the fiscal deficit that continues to be higher and higher. So, I think that's also going to add pressure to the treasury.

Brian Pietrangelo [00:17:24] So Steve, you mentioned earlier trends of earnings to the up and to the right. So, we'll give the final question to you today. What do you think about the Q3 earnings as we are on the verge of the report season next week?

Steve Hoedt [00:17:35] It seems to me, Brian, that we're likely going to get a fairly solid earnings season again, especially out of the MAG-7. We've seen nothing that would suggest otherwise. It doesn't seem to me that the bar is set in a place where it's going to be difficult for these companies to get over the expectations hurdle. And that's always the game going through earnings season, whereas the expectations hurdle hits it and where are companies going to able to beat that hurdle and it does seem like we're set up in a pretty good place actually as we go into Q3.

Brian Pietrangelo [00:18:11] Well, thank you for the conversation today, George, Steve, and Rajiv. We appreciate your perspective. 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 has no guarantee of future results, and we know your financial situation is personal to you. So, reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed. And provide those keys to help you navigate your financial journey.

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Brian Pietrangelo [00:00:01] Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, October 3rd, 2025. I'm Brian Pietrangelo and welcome to the podcast. With me this morning, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more: George Mateyo, Chief Investment Officer, 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 data, we have three key economic releases for you, but the bigger news is that we don't have some other economic releases, and we'll talk about that here in a minute. First up, earlier in the week, we got the JOLTS Report, the Jobs Opening and Labor Turnover Survey report, which showed that job openings were steady and relatively unchanged from the prior month in August at $7.2 million. In addition, that report showed that the number of quits and the number of layoffs were also relatively unchanged. So at least somewhat good news from this report in that things remain steady on that front with that data point.

However, second, we got the report from ADP, which is their private payrolls report, which showed jobs 32,000 down for the month of September when the estimates were for a positive 45,000 of new jobs created. So that's a pretty big miss and maybe an indicator of things to come. Now, we don't normally report on the ADP payroll report because it's got some disconnectedness with the overall employment situation from the Bureau of Labor Statistics that normally comes out two days after the ADP report, usually the first Friday of the month. But again, we did not get that due to the government shutdown, which we'll talk about here in a minute.

And third, we also received some updates from the Institute for Supply Management with their Purchasing Managers' Indices both on the manufacturing side and on the services side this week. For the month of September, the manufacturing PMI did show that the economy on that end of the spectrum was in contraction and continues to be in contraction. Again, this is not a surprise. This has been going on for roughly about four and a half to five years. It's been fairly stable, but has been in the contractionary mode. On the services side, the report comes out a little later on this afternoon or this morning, actually. So we'll try to talk about that within the podcast.

Now, turning to the bigger news, we did not have two employment reports that we expected to get. The first was the weekly initial unemployment claims on Thursday; it did not come out due to the government shutdown. In addition to today, we get the monthly employment situation report from the Bureau of Labor Statistics, which describes new non-farm payrolls and the unemployment rate, which we also did not get due to government shutdown. So let's turn to George right away and get his reaction on the economic data that we did receive, the economic data we did not receive, his general thoughts, and then we'll go into a discussion on the government shutdown. George.

George Mateyo [00:03:23] Well, Brian, it is jobs Friday today, although we're not getting a jobs report, so we'll have to make do with what we have. And I think the overall data that came up this week, there is probably a little less veracity in the data. The data isn't quite as good as we normally get. And we have to keep in mind, despite the fact that there were some questions around the data integrity earlier this summer, some of these data sets go back decades. And it's kind of interesting to note that the data that the government relies on. Around the employment situation was actually first established during the Great Recession. And, I don't mean the Great, I should say the Great Depression rather than the Great Recession. So the Great Recession, I guess, just to put it in context, was 2007, eight, nine; the Great Depression was in the 1930s. And so I think that was really kind of noteworthy in a sense that a lot of the data that people rely on today, so it was kind of born out of that depression environment almost 100 years ago. But that said, I think it's fair to say that the data did come out kind of more the same overall. I think we're still in this environment that we're seeing and describing as kind of a low firing event, but also a low hiring event. There's not many massive job layoffs, thankfully, but the overall labor market is not really clicking along on all cylinders in the sense that many companies still are not hiring aggressively. So I think it's fair to say that this is kind of like a slowish kind of economy, but there are some pockets of strength. We've seen, for example, consumer spending hold up really well. And we'll probably get into this later in the conversation, but I also would acknowledge that the spending around data centers and AI infrastructure is just exploding again. And that's also kind of coursing through the economy in many respects also. So irrespective of what's kind of happening in the labor market, irrespective of what's happening in the government for now anyway, consumer spending and AI spending are really quite brisk.

Brian Pietrangelo [00:05:14] Well, George, let's dive a little deeper into the government shutdown. And I'm gonna give you some rapid fire questions. I know you've got the answers to all of them, but in general, what is a government shutdown? What would our audience need to know? What are the effects on the markets and the economy? And specifically, what does the effect on investors for short-term reactions to the market and long-term reaction and how does it get resolved?

George Mateyo [00:05:36] Well, how it gets resolved is always kind of the sausage making that is known as compromise. And that doesn't seem to be present at the moment, but that could change pretty quickly. I guess from a broader perspective, I think it is fair to say that we have to acknowledge that every year this can happen basically. Every year, Congress essentially must pass a budget. Or they can do what they call passing continuing resolutions or CRs. And those things essentially allow the government to keep open. And this is kind of the time of year where the budget is revealed for the following year. You know, it's 9/30, 10/1 or so. And if the budget's not passed or CR is not passed, the government essentially shuts down. Agencies closed. Activities related to government activities also are essentially halted. And I think, again, it’s important to note that the media has been covering this quite well. Many of the essential services. We'll remain open, you know, air traffic control, military spending, and also the interest on our debt, which again, is becoming a bigger and bigger deal.

So I think it is fair to say that this is not the same thing. We should really kind of warn people. This is not same thing as a debt ceiling issue. That's a really big deal. And we kind of came close to it earlier this year. The debt ceiling, again, just to remind people, is the limit the overall government can borrow. And if that ceiling is not lifted, then interest payments might not get made, and then technically the government's in default. So that's not the situation now, that it actually was addressed earlier this year in the Big Beautiful bill, and that's behind us and not really kind of a concern at the moment. But shutdowns themselves, as I said, kind of have happened with greater and greater frequency. Since 1980, Ryan, I think there's been 15 shutdowns. And most of the time, shutdowns are really not lasting economic events. The average shutdown, for example, if you go back since 1980, was about nine days. It is noteworthy that the last four shutdowns actually have lasted 18 days, and the most recent shutdown, which occurred in President Trump's first term, lasted 34 days. So that's probably another example and just a reminder of how partisan politics have come.

In terms of the economic impact and market impact, again, most of these things are short-lived events. We do kind of have seen kind of some slow, I guess, kind of short-term drop-off in spending, where essentially people kind of maybe poured cash a little bit more. Maybe they don't go out to eat as much as they would normally. And then when the government reopens, spending kind of popped back up. And that's kind of analogous to what we see around some major weather events, where spending essentially kind of dips and then it bounces back once the storms pass and rebuilding takes hold.

I think there is some concern that this time, workers who typically are furloughed, meaning essentially they're kind of at home, not earning anything, but when they get back into work, essentially they get back pay. And there is concern this time around that maybe some of those workers on the government side might be permanently laid off. That's also been covered widely in the press. I think it's important, though, to put that in context, too, in the sense that the effective workforce might tell anyway. Would represent less than 2% of the overall labor market. So yes, it's a big deal. That would impact people directly, most acutely, particularly in certain parts of the country. But overall, I don't think it's gonna be a major economic event unless this thing really drags out for a long and gritty time.

The financial impact goes a little bit different in the sense that we had to, we talked about this already in the since that the data that we normally rely on when making decisions, the policy makers use to make decisions, is delayed or probably even suspended as well. So we do have to rely on alternate data sets. We've talked about some of those as well, I think equity markets have taken it in stride generally speaking. I think today, for example, Brian, that the shutdown was first announced and really took hold, I think the equity market was up that day. And a lot again, that is driven by AI spending and other things as well. But I think a bigger question, Rajeev, is for you in the bond market, what do you think the Fed does with this information or this void of information as they think about cutting rates potentially in this month?

Rajeev Sharma [00:09:25] Yes, I mean, you make a lot of great points there, George. The information void that we're having due to the government shutdown, the market is taking it pretty much in stride. And if you look at the bond market, it's kind of doing what it anticipated going into the shutdown. Treasuries rallied, everybody ran for safety haven assets and people are now looking at the Fed. They're not getting the data points that are important, not just for the market, but obviously for the Fed as well. So it kind of brings into question what's gonna happen to the rate cutting campaign that the Fed started last month. There were already uncertainties before the government shut down, but the market knows that inflation is sticky. The market knows that labor market had been cooling. The market has confidence that the US economy will land softly and that rate cuts will continue to boost risk assets like equities, as you mentioned.

If you just look at the bond market volatility through the MOVE Index, volatility has been steadily trending downward since Liberation Day. So the market has already priced in a terminal rate of 3%. And so there's very little room for aggressive easing, unless the US is headed for a recession, which is viewed as very highly unlikely. On the other hand, if inflation were to rise further on tariffs, that would be likely reevaluation of the Fed expectations of rate cuts. Again, the impact of tariffs does not seem to be on the mind of market participants. So a lack of data through this government shutdown almost means that the market can wait longer to see if we get a rebound in inflation or a further cooling of the jobs market. And as the market waits for information or to find alternative data sources to kind of make a picture of what the Fed might do, the market continues to focus on risk assets. Specifically the carry that investment grade bonds offer in a rate cutting cycle. And for this to continue and for the market to continue to gravitate towards risk assets like equities and corporate bonds, you need two things in the market. One, low volatility and two, a positive risk sentiment. And we have both of those things right now, even with this government shutdown. So anything that changes those two variables, then there's a harsh reality check that the market would have to have.

But investors are pretty certain right now that the Fed will continue to move along with their rate cutting campaign. Despite some of these key data releases being delayed. In fact, currently the market has a 98% probability that we get a 25 basis point rate cut at the October 29th meeting. And about an 89% chance that we get another rate cut 25 basis points at the December 10th meeting, so the market overall is pricing in two more rate cuts for this year. And the market over all is pricing in 105 basis points of rate cuts over the next 12 months.

So going into the shutdown, as I mentioned, treasuries once again, proved to be the safety haven assets for investors. We saw yields move lower along the yield curves, specifically in the front end. The yield curve has further steepened, but even without the jobs data today, there are still other factors in the market that could move the picture. We have Fed speak, obviously many Fed members have been coming to market and kind of weighing in on what they feel about the government shutdown. And in fact, the most recent one was Chicago Fed President Goolsbee. Who noted that unemployment in his estimates would have probably printed around 4.3% if we got the labor market data today. In other words, at 4.3%, there's really no change from August. So by making that statement, it's kind of the markets has to interpret what that really means. So if unemployment sticks at where it was in August, that any signs of job stabilization would pull yields higher. And maybe put back into question is the Fed going to really continue cutting rates? But it's not enough again, to move the probabilities that we're seeing in the market right now. Market still anticipating two rate cuts, but I think we're gonna get, if we don't get the data, we're going to get noise and that noise is gonna be in the form of Fed speak or maybe other headlines that hit the market that move the yield curve one direction or the other.

I do feel however, that if you look at risk assets, as you mentioned equities, if we look at corporate bond spreads, they've been extremely stable even through all of this. They've remained that way for pretty much most of the year, except for two weeks in April. And I anticipate that stability to continue as we enter the bottom couple of months of the years. I do think that the new issue calendar is going to continue to be robust. There's a lot of issuers that are coming to market with new bond deals. Again, there's a lotta demand for these deals. So there really isn't any catalyst that I see right now in the near term that could take credit spreads wider. Without something really significantly changing, maybe default rates moving up. But again, if you have an economy that's not entering recession and you have corporate bonds that are continue to be in huge demand, I think spreads remain pretty much in this tight range that we've seen multi-decade types that we see.

Brian Pietrangelo [00:14:22] Well, thanks Rajeev. I've got a final question for George and that is just to remind people that certainly past performance is no guarantee of future results. But when we talk about the volatility near a shutdown, George, it tends to ascend the market down, but three, six months, 12 months later, the market tends to rebound. So what final reminders might you have on that note for our investors and in general?

George Mateyo [00:14:43] Well, I think Brian, everybody thinks that this time is different and this time it's different on occasion, but this time doesn't feel that different to me just yet. And we've kind of seen this before, to some extent. Again, there'll probably be some wrinkles and if we've learned anything this year, I guess we should learn that we should probably expect the unexpected. So we have to kind of keep that somewhere in the back of our minds at the very least, but I kind of suspect that again, this shutdown will probably follow the pattern of previous shutdowns. Again, as you pointed out, there is some volatility around the shutdown itself. Maybe it kind of lingers into the final week. You know, we can't look back at, or I guess other analogs. And 2018 into 2019 was a little bit of a different time in the sense that rates were a little restrictive. The Fed was shifting policy, volatility, and really kind of overall market activity dried up a lot because it happened really right at the end of the year where most people are on holiday. So, you know, again, the 2018 analog is a little bit different, but you're right to think that volatility does go up, stocks kind of move down a little. I'd say bond markets and yields move around a little too, but overall it's mostly noise. And as you pointed out, this does kind of settle out. So most of the times, as we've said before, markets settle up when the overall market environment settles down, meaning once the temperature goes back down again, once people get back to work, once some of the statistics that Rajiv talked about get released and we're waiting for some of those numbers, things do settle down a little bit and markets actually resolve higher.

Brian Pietrangelo [00:16:09] Well, thanks for the conversation today, George 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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