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 27th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we enter the last trading day of the month of February, again the shortest month of the year, we are reminded that there is tons of national attention, if not global attention, on the Olympics. And last week on the podcast, we congratulated the women's hockey team for the gold medal. And again, this week, we're also able to congratulate the men's hockey team for their gold medal over Canada. Obviously, a tremendous accomplishment, only the third time in all the way back to the 1980s. And again, really, really proud of our team and both the women and the men's great accomplishment for everybody. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and much, much more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, as always, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, the economic release calendar was very light, so we only have three very quick updates, and then we'll move to a more robust conversation on the markets. First up, earlier in the week, durable goods orders were down 1.4% in December, which was a little bit of a downgrade, obviously, because last month, in the month of November, it was up 5.4%. So we'll take a look at that and see if it continues to be a trend or not. Initial unemployment claims came out yesterday and remained very stable at 212,000. And third, just this morning, the producer price index of inflation came out at 8.30 in the morning, and it was a little hotter than expected, was 0.5% month over month, and was up 2.9% year over year. So we'll talk about how that may or may not bleed into the consumer price index and overall inflation in the market. So with that, let's turn to Steve to start our conversation today. There's a lot going on in the markets, not only with earnings, but also volatility, the conversation on the AI trade, which we'll talk about in our conversation today. So let's start first. Because NVIDIA is such a large portion of the market, we have a conversation around it. And specifically, Steve, we often have said higher earnings equals higher stock prices, which we know is a generality and a directional trade. But for our listeners out there, can you provide some depth and explain what is the underlying dynamic going on when Nvidia reports strong earnings and then the shares end up dropping in the following day, which is a little bit of a disconnect. So give our audience some education there, Steve.

Steve Hoedt [00:03:09]

Well, Brian, you know, when you look at the report out of Nvidia, you would certainly think that the stock would have been higher on the day, given the fact that we had more than what people had been looking for. People have been looking for a 2 billion beat plus on a revenue line and $2 billion plus in additional guidance. These two plus two quarters historically have generated really good reactions from Nvidia stock, but it just seemed like we were set up for what market participants call a sell the news reaction. So the stock had drifted up into the earnings announcement. And it feels like while quote unquote expectations were were exceeded, the real expectations the market had were higher than what the company was able to produce. So that's what you get how you get a sell the news reaction. You know, when you get positive price action running into a number, the number has to be significantly better than what people are truly expecting and not just the gamified kind of numbers that the sell side kind of puts out for expectations. So, you know, not really surprising. And then, you know, To put on my technician's hat, if you look at this stock, the stock has basically been bouncing between $170 and $200, give or take a couple of dollars either way, since last July. And we were up toward the top end of the trading range again. So it was going to take a significant beat to blow that stock through significant overhead resistance near $200. And while the numbers came in perfectly fine, they weren't strong enough to blow market participants away and get us running off to the upside. Now, that doesn't mean that the AI infrastructure trade has come off the boil or anything like that if you look at the numbers, at least underlying. But the stocks are certainly having a more difficult time here lately.

Brian Pietrangelo [00:05:28]

Great, Steve, and we've got about 94% of the companies reporting for Q4. Any comments as we near the end of the season?

Steve Hoedt [00:05:35]

I mean, it's been a good earnings season, but it seems to have not been enough to get the market going to the upside. And it's been largely because the dynamics under the hood are more difficult for the market when you've got a heavy concentration in these mega-cap technology names. 40% or so of the market remains tied up in mega-cap tech. And mega-cap tech had earnings that were okay, but not good enough to exceed expectations, just like we had this conversation about Nvidia before. So those stocks have largely had negative reactions to their earnings announcements. And given their contribution to the index, it's kept the index capped. Now, what's been really interesting lately is if you look at the S&P 500 equal weight, the equal weighted index has moved to new all-time highs over the last two to three weeks as earnings season has progressed. And this is that broadening out trade that we've talked about for the last probably three to six months, where we've really seen things such as this year anyways, industrials, materials, energy, healthcare, staples take leadership roles as we've seen this rotation away from technology. That's something that we think is likely going to continue. What it creates is it creates a market where there's a lot of dispersion and returns across the stocks and sectors. And I think it's something that we think is likely going to persist here. It creates a situation where people will look at their headline number on television on CNBC or some other place and see the S&P 500 not moving around very much. But there's significant movement in stocks that are not necessarily large weights in the index.

Brian Pietrangelo [00:07:30]

Thank you, Steve. And final question for you this morning. There was an article, some call it a research paper, Some call it food for thought, some call it a prognostication. It's probably somewhere in between all of those that talked about the artificial intelligence threat to the economy and the employment front. Do you have any thoughts for our listeners on that article?

Steve Hoedt [00:07:50]

Yeah, you know, it was released over the weekend into a relative news vacuum at the beginning of the week. And I think it had a lot of, made a lot of people think about some stuff, but I don't think it's, And people need to take things like this with a grain of salt. There are some parts of it that I think had some disconnected thoughts. It didn't make a lot of sense, but I keep coming back to the fact that if you look historically, when we get technology leaps, it's led to more employment, not less. It's led to more jobs, not less. What I found fascinating about this is like it, the article talked about a lot of a lot of job disruption going forward, right? And I'm sure we're going to see job changes, but if you look over the last six months, there's actually been more job postings for software engineers than there were in the six months prior to that. So like if this was truly a case where these kind of jobs are going to go away, I think we'd be seeing other other things in the data right now, and we're just not seeing it. So, you know, it's food for thought. Anything can be a scenario going forward. And I encourage people to take a look at things like this to challenge their own thinking. And we did the same. But I don't think that it changes our our thoughts that this is in general a good thing for for the economy and for overall.

Brian Pietrangelo [00:09:32]

Perfect, Steve. Thank you. And on the concept of disruption a little bit, George, let's turn to you where we talk a little bit about tariffs and the changes regarding the IEPA ruling that we discussed last week this time on the podcast. But now there's a new series under a new provision of an act, and President Trump would like to implement them at a 15% rate. What are your thoughts, George?

George Mateyo [00:09:54]

Well, I think people have kind of moved on from Paris, honestly. I think people have kind of faded that a little bit and come to accept the fact that the overall tariff rate is probably going down, not up. And it just creates more uncertainty and markets don't care for that, but that's kind of the state we're in right now. So I think to some extent, based on, if you look at, you just mentioned, for example, Ryan, earnings calls and wrapping up the quarter that just ended. the mention of tariffs has really gone down considerably. So fewer companies are talking about it, not to say that they're not being impacted by it. And I still think there's probably some, you know, war room strategizing around what the new rates will do to their business and maybe again, some uncertainty around rebates of tariffs and so forth. So it is probably still disruptive, but it's probably far less disruptive than it was this time last year. I think the bigger narrative, as Steve talked about, though, is the fact that companies right now have reported really pretty solid earnings, but the market's not caring. And the market's focused more on the future as opposed to the present and the unknown about the future more specifically. I was really kind of struck by the fact that a company last night, which doesn't get a lot of attention normally, but it's an interesting company that sits in the payment industry. And they talked about shrinking the workforce by close to 50%. I mean, I think it's about a 10,000 employee company. They talked about taking their employee base under 6,000. And they're not doing that because, frankly, the business is suffering. I mean, they're doing it because they're doing it in spite of the fact that revenues actually were better than expected. They actually raised their outlook for the year ahead. but they're doing so because they're really leaning into AI. And they looked at a company like Twitter, I think it's now known as X. I think I heard recently that there's only about 30 people running the company, which is really quite startling in the sense when that company was actually taking over in, I think it was 2022, there were north of 2,000 people. So that's a significant reduction of workforce because of AI, not because the business is struggling or some economic force. So, I think that's really what people are probably really focused on. Steve is right to talk about the fact that this disruption usually kind of plays itself out in a more productive way, meaning we have these layoffs, we have this situation where businesses are being transformed almost overnight. But the net-net overall job gains are still pretty solid. But we're going to be in this awkward transition maybe where we see layoffs go down before we actually get to the other side of new jobs being created. And I think that's probably the bigger narrative around what companies are trying to struggle with and grapple with amidst the uncertainty of the tariffs that you talked about earlier. So, I guess, Brian, I could probably turn the table a little bit to you. You were on the road this week again, talking to clients, meeting with investors. What kind of things did you hear from investors from your travels on the road?

Brian Pietrangelo [00:12:42]

George, thanks for the opportunity. I was in Albany this week for a client event, Syracuse for a client meeting, and then a couple of weeks ago in Rochester and Buffalo. So I'm kind of hitting the I-90 corridor out there in upstate New York, but the great news is twofold. One, the clients are engaged. They ask a lot of questions. And so that's always very, very good in the travels that I have. The second part of the good news is that most of the questions come in the form of topics that we discuss regularly in not only the things that we're writing, but also the things that we talk about on this podcast. Examples would be, are we headed for a recession? What's happening in the employment market, especially from small business owners? what's going on with certainly artificial intelligence and the volatility in the market. Business owners and others are a little bit more in tune to what's going on with tariffs rather than the general public for obvious reasons. But here's a couple others that make sense. People want to know what's going on with gold. Why does it continue to have a rally? And then the question that I get asked probably 98% of the time at the client events is what's going on with crypto and what are our thoughts? So pretty wide-ranging, but again, for most, if not all of those other than crypto, we continue to talk about these topics on the podcast. So thanks to the team for doing so. And the clients really appreciate that content. So, Rajeev, finishing with you, we'll talk about the bond market. What's happening in the bond market this week?

Rajeev Sharma [00:14:10]

Well, the bond market seems to be shrugging off a lot of the latest economic data. Specifically, yields fell on the PPI data that we saw. Overall, there's this risk-off mood that is still supportive of bonds. And this is all with almost everyone expecting nothing coming out from the Fed until the second half of the year. Fed minutes were released last week. They signaled a bias to hold rates steady due to improved labor picture and inflation that is stubbornly around 3%. If we speak about how yields did, yields are down across the treasury curve with the 10-year breaking through the resistance level of 4%. We often look at that 4% number as a psychological number that once we breach that number, we can go further down or we can stay around those levels of do buyers start to pull away, but they do not. And if I look at my screens right now, the 10-year is around 3.97%. So safe haven demand is what continues to push yields lower. In fact, US bonds are wrapping up their best monthly performance in a year now. And you can point to rising global risk or increased demands for bonds as a catalyst. But the safety haven play does put the $30 trillion US government bond market back into focus as a safety play. Treasuries clocked in returns at 1.5% for February. That's the best run since we've had this time last February. And if you look at long-dated US government debt, they've shown returns of 4% in one month. So again, when you see other markets flashing warning signals on AI and its disruptive nature or worries about hidden dangers of private credit, you will see traders move towards US government debt. For the first two months of 2026, over $16 billion have flown into the Treasury market. But for even all of these gains, the Treasuries will still need to break out of this range that they've kind of traded in since last September. Specifically, the two-year Treasury note yield, which is most sensitive to Fed policy, has traded between 3.4% and 3.6% for the last several months since September. And as I said, the 10-year has finally breached the 4% yield mark, but we've been hovering around that 4% point for months now. So you will really need something else to firmly move in one direction or the other. That could be the payrolls number that comes out next week. The market still expects two rate cuts for the year. And if you look at spreads, they've been some modest widening on a risk-off type mood in the market. We did see investment grade spreads move out about 3 basis points this week. Same with high yield, about 3 basis points. Not very pronounced moves, but it's something to keep an eye on because if you look at the credit default swaps market, we see a little more pronounced move there. So it's going to be interesting to see how credit behaves. Again, investors continue to follow for blue chip, very high quality companies. You're getting decent yields on them and they have very strong balance sheet is going to be very important. Credit metrics are extremely important for corporate bond investors. The amount of supply that's coming into the market has been very pronounced, but it's been doing very well. These deals are getting done, and investors are really looking for those high-quality names and putting money to work.

Brian Pietrangelo [00:17:15]

One final question for you, Rajeev, while we have you. There's an interesting dynamic in that 30-year yields on the long end of the curve have actually been going up, not even coming down, but now we see some data this week that mortgage rates have come below 6% for the first time, the average 30-year mortgage at 5.98%. Could you reconcile that for us?

Rajeev Sharma [00:17:37]

Sure. I think the mortgages have really They were lagging last year for a big part of last year. And I think what happened is they were the trade that everybody jumped into at the end of last year. And you did see this idea that mortgage rates could go down with some of the news headlines that were coming out, that perhaps there'll be some government intervention that would bring rates down in mortgages. The third-year, as you mentioned, nobody's really going further out in the curve to take on that risk. So mostly the intermediate part of the curve has really seen the performance. But you do see those 30-year rates coming down, and it has a lot to do with the fact that there could be some government intervention to bring those rates down, even if you hear headlines about blocking institutional companies from going out and buying homes, I think all of that works in favor for the mortgage rates to come down.

Brian Pietrangelo [00:18:27]

Great. And we'll leave the last comment to George, as he always provides us with the overarching comments on the markets and the economy. So, George, any closing thoughts for today?

George Mateyo [00:18:36]

Oh, Brian, I guess it would probably sound a bit cliche, but I'll say it anyway. I think given all this uncertainty and all this chaos that we're experiencing on a daily basis now, I think we continue to reiterate the fact that really being diversified makes the most sense, right? And I think because the future is just uncertain, we just don't know what's going to happen next. And there is a lot of uncertainty. We've talked about the AI trade for quite some time and discussing the fact that maybe there was this notion that companies are spending too much money chasing too little demand. And now that's kind of pivoted big companies not spending enough. But at the same time, maybe this AI trade has become too good that it's bad, meaning that we're starting to see some negative implications for that as well. But irrespective of that, I do think over a long period of time, we'll probably see some great productivity benefits. We'll see a lot of uncertainty. At this point, we'll probably see some unfortunate job losses and transition. But despite that fact, I still remain of the view that on a long-term basis, we really wanted to remain fully entrenched in the optimism trade, meaning that it usually kind of bears fruit. The pessimistic narrative always seems to be more alluring and more appealing, but usually optimism prevails, and I think that's going to be the case this time too.

Brian Pietrangelo [00:19:45]

Well, thank you for the conversation today. George, Steve, and Rajeev, we appreciate your insights. Before we close the podcast, just another quick reminder. We gave you the same reminder last week. So again, the last opportunity to remind you of our national client call coming up on March 4th, next Wednesday. And it is a call with regard to navigating the noise and finding meaning with a conversation with Brian Portnoy and Tom Jarecki from Key. Brian is a guest speaker and an expert in the area of behavioral finance and how the markets work with the mind. Very interesting topic. If you have an invitation, please attend. If you don't, please reach out to your financial advisor to get that invitation. And again, Wednesday, next week, March 4th at 1 P.m. Eastern and 10 A.m. Pacific, Navigating the Noise with Tom Jarecki and Brian Portnoy. Well, thanks for our listeners for joining us today, and 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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