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, February 13th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we approach the halfway mark in February, we've got a lot going on, including tomorrow. The 14th is, of course, Valentine's Day. On Sunday, we've got the National Basketball Association All-Star Game, which is quite fun. And on Monday, we celebrate President's Day, which was incepted to honor both President Washington and Lincoln, but is now extended to all presidents. And also, since we are midway through the month, we'll talk about two month-long celebrations. The first is Black History Month, which offers the opportunity to celebrate African-American history in the United States. And we also have American Heart Month in the month of February, which is a nationwide celebration of observation to spotlight cardiovascular disease. It was actually established back in 1964, and the month encourages individuals to adopt healthy habits, manage blood pressure, and learn CPR to save lives. And in addition, some of the activities during the month include the National Wearing Red Day for Women's Heart Health. So supporting those two month-long causes certainly takes a lot of interest and makes a lot of sense. So please do what you can for those both month-long celebrations. With that, I would like to introduce our panel of investing experts. Some might say they're all stars in their own rights, here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, Rajeev Sharma, Head of Fixed Income, and Sean Poe, Director of Investment Research. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got three key updates for economic releases this week, and we begin first with overall retail sales. Retail sales for the month of December, it's always a two-month lag, came in this week and worth $735 billion, up 0.0% from the previous month, so essentially flat. And that is a decline from November's retail sales, which were up 0.6%. So ultimately, we have to look at this as one of multiple indicators with regard to consumer spending and take into consideration that some things may be slowing as we move into the new year. And second, on Wednesday of this week, we got the delayed employment situation from the Bureau of Labor Statistics, which was supposed to come out last Friday, but came out this Wednesday instead. And that all-important report not only has the new non-farm payrolls for January, which saw a gain of 130,000 jobs, while the revisions for November and December were only about 17,000. So pretty good net-net month for new job creations. Overall, there was strength in the services industries as well as strength in the healthcare industries. We also get the unemployment rate for January out of that same report, and it ticked down by 0.1% to overall 4.3% unemployment rate. So net net pretty good news for that monthly report. In addition, we got the annual revision from the employment situation report for new non-farm payrolls from the month of April 2024 through the month of March 25. Now this is typical on an annual basis. There are revisions to get more accuracy and ultimately the numbers for the total year will revise downward by 862,000. So that sounds like a big number, and it pretty much is. However, it was better than expected. So ultimately, we've got a decent report this month. And third, we received the Consumer Price Index measure of inflation from the Bureau of Labor Statistics just this morning. It was delayed only by two days, but ultimately got that report today, and it showed favorable news in that the year-over-year increase for inflation was only 2.4% for the month of January. In addition, the core, excluding food and energy, was up 2.5%. So both of these were an improvement from the December numbers headed in the right direction, meaning we want to see inflation recede. Some of those numbers were driven by lower energy costs, and to some degree, we've also seen a tick down in the overall cost of shelter. And so that's a big component of the CPI calculation, so it's good news headed in the right direction. Again, we'll have to consider whether this continues to be a trend more months than just one. We also had some choppiness in the stock market this week. We'll get Steve's take on that. But first, before we do that, we'll go right to George to get George's reaction to boast some pretty powerful information this week, not only on the employment situation report, but also on the CPI report. George, what are your thoughts?

George Mateyo [00:05:17]
Well, net-net, Brian, I think the overall reading on the economy is that it's just doing fine. It's OK. It's not spectacular, but it's not falling apart. I think we could kind of parse out all kinds of data in many different ways. People, for example, were probably expecting a lot worse than what we got. And so it's better than expected on many accounts. And that's probably good enough for now in the sense that the recession risk still seems to be in the distant future. I think if I want to get really precise about it, you could look at the employment numbers, for example, and I think the journal covers pretty adequately, so I won't spend a lot of time talking about it, but healthcare, which is a big part of the economy, healthcare was the big source of job creation. And I think some people take exception to that in the sense that, well, yeah, it's a big part of the economy, but at the same time, it's not maybe the true industrial manufacturing part of the economy that people might have expected to see some growth, so they could kind of quibble that. Again, I think overall the numbers are pretty suggestive, the fact that the overall labor market's still in okay shape. And then similarly, we saw the inflation numbers this morning that you mentioned, and I think people are somewhat pleased by the fact that inflation is not, again, spiraling outta control, but at the same time, people are maybe parsing the numbers and thinking that, gee, the housing component of inflation might have been a little bit artificially soft, and that I mean, that it might've been driven down by immigration and some other trends, that, again, are not really truly reflective of the inflation situation, which will probably show up in the next week or so when we get the PCE report that the Fed books have. So again, overall, I guess, again, I think the economy is in okay shape. I think to some extent, the economic regions right now are still somewhat less relevant because frankly, we're still catching up from the pandemic and we're still catching up, frankly, from the shutdowns of last year as well, the government shutdowns that rippled into this year too, of course. So I wouldn't suggest that the linkage is broken, but I just think that there's probably the market's probably digesting other things in real time. And frankly, probably trying to get its heads around where we're going with respect to the future outlook. Because again, next year could be an in the sense that some of the stimulus that the economy has been accustomed to right now might start to fade. We might start to see some fading of the AI spending, which again, is still massive and probably really driving a lot of the activity overall. And again, I think some of the earnings power from those companies might also start to ebb a little bit in the sense that we've seen probably a pretty good boost in earnings from AI spending, other things as well. And maybe as we turn pages to next year, that might fade a little bit. So again, the outlook wouldn't be bearish necessarily, but I think it just might be a little more cautious as we approach the second-half. I think at the same time, Rajeev, I think about how the Fed's processing this, and of course, the Fed's a bit preoccupied with who's going to be the next Fed chair and some other things in the near term. But I think that the inflation report this morning probably gives the Fed some room to cut if they wanted to, in the sense that the inflation situation isn't spiraling out of control. But I'm not sure if they really need to cut either at the moment, given the fact that the employment numbers were pretty okay. What do you make of that? And how do you think the Fed is processing what the data that came out this week said?

Rajeev Sharma [00:08:29]
Well, it's a very good question, George, because I think, you know, you get this inflation reading, it comes below forecast. And you see the reaction of the market immediately. We saw yields move lower across the Treasury curve. Now, specifically, as soon as the CPI numbers were out, the two-year Treasury note yield, which is most sensitive to Fed policy, that moved lower by six basis points right off the bat and got to 3.4%. And that's the lowest level we've seen on the two years since October of last year. And that's a direct result of market expectations about what the Fed's going to do with this information. Those expectations are now shifting that we get our first rate cut. It's expected to be in June of this year. And that's not all. These softer inflation numbers, now the market's starting to think about free rate cuts for 2026 rather than the two that the market is expecting before the inflation report released. If you look at current odds, traders are pricing in roughly 63 basis points of easing for the year now. That's the equivalent to around 50% odds of a third 25 basis point rate cut coming in December. One data report does not make a trend, but it definitely shifts market expectations. And it should also make the Fed feel a little more comfortable when it comes to cutting rates. They do have some more breathing room, but they can look at this data and say, we've been looking at inflation data. I'm sure they're going to want to wait for the PCE numbers, which is what they really go by when they look for inflation. But this inflation number comes two days after the delayed monthly employment report that showed solid hiring and a drop in unemployment rate. That labor data actually caused traders to pare back rate cut expectations and move to July being the first rate cut rather than June. This is how quickly pieces of data can change market expectations. I think the Fed doesn't move as quickly as the market does. The Fed's going to take all this information as it comes to them, and they're going to decide when is that first time to do a rate cut. I think that's going to be very important. They have said in the past they're data-dependent. I think they'll continue to be that way. But bond yields were already declining during the week. We saw volatility hit the equity market, and investors immediately made a run to safety haven assets, which is namely treasuries. We saw the 10-year treasury note yield decline 5 basis points just this week to 4.12%. That became a 2026 low. And in turn, it pretty much erased losses created by the strong labor report that we saw earlier in the week. The bid for bonds has staying power if this risk-off mode continues. Even the 30-year bond fell 8 basis points in a day and got to 4.73%. That's the lowest for the 30-year bond that we've seen since last November. And all due to the tech-led route that hit stocks. So momentum-driven buyers also jumped in on the week. There was a 30-year bond auction this week. Nobody thought that bond auction would do good, but because everything came around the same time and this risk-off sentiment hit the market, even though the yield that you got for that 30-year bond auction was anything but optimal, again, did very well. A lot of investors jumped into it. And that's, again, a signal for safety haven demand. Now, what we always do talk about is credit spreads. And we've talked a lot about overall investment-grade credit spreads being very, very calm and in a very nice tight trading pattern. But if we look under the hood at specific sectors, technology has been the worst performing segment of the investment-grade credit market. Energy, materials, autos, industrials, They've all remained pretty strong this week. They've been outperformers, but tech is on the opposite end of that spectrum. And the scare in software companies drove the sell-off, but also AI hyperscaler mega financing deals that hit the market over the past two weeks, that's also had an impact on how tech has performed. These AI hyperscalers are just getting started on their plans to fund the AI boom for the years to come. So we're going to have to really see how this plays out and sector specifically what happens within investment-grade credit.

George Mateyo [00:12:27]
Rajeev, I'm really glad you called out the relative weakness inside some of the sectors because we've seen the same thing, I think, kind of play out in the equity market, Steve. I think you'd agree with that where overall headline numbers are still pretty buoyant or maybe kind of flat, maybe more specifically, depending on which index you look at. But beneath the hood, as Rajeev's pointed out, there's a lot of churning, right? There's a lot of kind of cross-currents and a lot of sectoral differences and style differences inside the market itself. How are you thinking about this? And more specifically, Steve, kind of give us the latest of your thinking with respect to AI and what it's doing to the economy. And certainly, certain market sectors and companies.

Stephen Hoedt [00:13:00]
Yeah, sure, George. First, to your point about the market, we're back below the 50-day moving average again. So that's always kind of a first sign of things weakening a little bit. But under the hood, there's been a couple of things that have caught my attention this week. First, when you look at the increase that we've seen in volatility over the last couple of days, it's been very interesting to me to see the fixed futures curve modestly invert only a few basis points, but the fact is that you don't see the VIX future trade below the near-term VIX future without there being some concern in the market. So it's something to pay attention to as we move forward here. If that inversion deepens, it kind of signals that we could be in for a deeper correction here for the market. The other thing is, The dispersion of returns here has moved into the lowest decile across the large cap universe. And if you look historically, that's not necessarily been a portent of terrible things, meaning like bear markets and stuff like this, but it has signified soft market conditions, meaning that the return over the next three months or so is likely not going to be great. I mean, I think it goes directly to this idea that there's rotation within the market, there's churning. And when you go through these churning rotations, the market doesn't tend to make a lot of headway. So when you put all that together with this kind of, I told my team, it's like there's a movable feast in the market where bears are feasting on different sectors and industry groups on a rotating basis because of the potential impact that AI could have. It's like last year we were all focused on what's all the good stuff coming from AI. And this year the focus is on the who are all the losers. And it seems like everybody's a loser right now. I mean, yesterday it was it was trucking companies a couple of weeks ago with software companies. And, you know, it's like anything and everything in between trucks and software, which is pretty much almost everything seems to be potentially under the gun for people to assume that AI could be a disruptor or disintermediator. So I think until we get through this period, you're going to continue to see this rotation toward what people have called halo stocks, which stands for hard assets and low obsolescence. That stuff is very difficult. It's very difficult to replace. It's things like chemical plants, petrochemical plants, making stuff with manufacturing, this kind of thing. You can't disintermediate that with an AI agent. So the market has rotated toward this kind of stuff. And we think that is a trend that likely is going to continue to have legs as we move through the next few months, because we don't think that this AI situation is going to resolve itself quickly.

Brian Pietrangelo [00:16:15]
Steve, great update. And I'm going to have to remember a new acronym now, HALO. I was thinking of angel investors when you said that, which is a great segue to move from public equities from your camp, Steve, to private equities with Sean Poe. So Sean, thanks for bringing it into the conversation with us today on the podcast. Sean is a director of investment research in our multi-strategy research group. And Sean, we want to talk a little bit about private equity and more importantly, the IPO market. So let's have a quick conversation and talk specifically for our audience members. What is an IPO and why do they occur?

Sean Poe [00:16:50]
Yeah, thanks, Brian. So yeah, despite all of the volatility we just discussed, there's been, you know, a lot of rumblings lately in the media on the IPO window reopening. You're hearing about names like SpaceX and OpenAI planning potentially to go public this year. And of course, investors are rightly asking, what does this mean for my portfolio? So as you ask, let's start with the basics. What is an IPO? Why do companies even go public? So an IPO stands for initial public offering. Very simply, companies offer a portion of their equity to public markets in exchange for an influx of funding. For a lot of years, this was viewed as sort of the crowning achievement. A company worked its way through several rounds of private financing finally got to the point where they were stable enough and growing fast enough to bring it public and really get sort of that biggest influx of cash. It's worth calling out, there are a lot of costs that come with being a public company, of course, in terms of increased sort of regulatory scrutiny, an obligation to be very transparent and reporting on a quarterly basis, a lot of details that you really don't have to when you're on a private company. And so, if we rewind five years ago, the IPO market looked very different than today. It was kind of the hottest time for IPOs in quite a while. 2021, there were almost 900 IPOs, over $300 billion raised. So what led to this, that was the era of ultra low rates, pretty easy sort of overall monetary and fiscal conditions. And that was just sort of a wide open window for a lot of companies to go public. So then the window slammed shut, and it kind of took people by surprise, I'd say. But there were rapid interest rate hikes. I'm sure many listeners remember that. So that caused much tougher valuation standards in public markets. There was a lot of volatility. Public valuations fell sort of below the most recent private levels of valuations. And then there's all the headaches with going public. I mentioned the regulatory burden, the potential for market volatility. And then finally, it's incredibly expensive to go public. Six plus percent of your value is going to get eroded by IPO bankers and transaction costs. And so what happened was a lot of private companies that otherwise would have gone public said, Why bother? I can continue to raise money in private markets, and I don't have to deal with all the headaches of going public. What this led to, which was pretty astounding, was a delay in sort of the, if you think of the age of companies going public, it reached a height of 14 years in 2024, which is almost double the historical norm. It was so pretty fascinating to see sort of how that backlog built up. All right, so now that I shared the sort of bad part of it, now the IPO window might be reopening. So why would that be? Marketing conditions have generally improved. Volatility eased a bit, though potential for, of course, to come back into the market. Inflation appears very controlled. Interest rate expectations are very stable. Like I said, there's this big backlog of private companies that have sort of built their way up over many years and are looking for that next round of fundraising. No surprise, a lot of these companies are AI players where the capital needs are quite intense. And so it's very appealing to be able to go out to public markets and raise that next round.

Brian Pietrangelo [00:20:41]
That's great. So Sean, think about it from the investor's perspective. What does it mean in terms of opportunities for someone in their portfolio to take advantage of this? Not necessarily the IPO 'cause you gotta get in the shoe with the wire house, right? But more so in portfolio construction. How should they think about it?

Sean Poe [00:20:58]
Yeah, great question. So a couple of things to remember that you alluded to. Getting access to IPOs is hard in the first place. Banks are gonna prioritize their large institutional partners, valuations are going to be high to boot the returns and sort of the terms around an IPO are very restrictive for investors. And so you might see sort of a first day IPO pop. I'm sure there's a lot of headlines around that, but the longer term performance tends to lag broader markets. The lockups are such that you are holding a newly public security for up to 180 days. And so you can't even benefit from that. So what should investors actually do? The data suggests that the best returns here, if you want to play sort of this emergent dynamic, would be through the private markets. So not actually playing the IPO itself, but getting in around or two or three before the IPO. So the best avenues would be private equity and venture capital, broadly, where you can participate across sort of multiple financing rounds. And these are the years when the groundwork for the extreme growth sort of actually occur. And so if you kind of approach it that way, by the time a company like SpaceX goes public, the private market investors have already participated in the majority of that value creation even before the IPO event. I will say, of course, with any sort of private market investing, it's not for everyone. A lot of things to consider there in terms of thinking about sort of liquidity management, tax considerations, portfolio construction and sizing. That's where I think having an advisor is really going to matter. So, yeah, I think it's starting to be actionable. But if I had to sort of sum it up, I'd say that with the IPO market reopening, the opportunity, the signal of saying, hey, private markets are starting to get sort of more interesting again, and just sort of be aware of the constraints as you go into it.

Brian Pietrangelo [00:23:11]
Well, thank you for the conversation today, George, Steve, Rajeev, and Sean. 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 [00:23:44]
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