Brian Pietrangelo [00:00:01] Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, August 8th, 2025. I'm Brian Pietrangelo, and welcome to the podcast.

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

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

With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer and Steve Hoedt, Head of Equities. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Brian Pietrangelo [00:15:57] Well, thanks for the conversation today, George and Steve. We appreciate your perspectives. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and will catch up with you next week to see how the world and the markets have changed. And provide those keys to help you navigate your financial journey.

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