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, May 16th, 2025. I'm Brian Pietrangelo and welcome to the podcast.
And before we begin today's podcast, I would like to take a pause and reflect that ten days from now will be May 26, and that will be Memorial Day. As a result, we will not have next week's podcast on Friday as an observation of that, going into the Memorial Day weekend and then Memorial Day on May 26th.
As a result, I would like to pause today to mention that we ought to have a reflection on overall Memorial Day, the reason for Memorial Day. Certainly for those who died in service, serving their country from a military perspective. And it's our opportunity to honor and reflect them. The first observance of Memorial Day actually occurred back on May 30th of 1868, and was proclaimed by Commander-in-Chief John Logan of the Grand Army of the Republic in honor of the Union soldiers who had died in the American Civil War. We all know that this carries fairly forward for all the wars that we have been in within the United States, including World War I, World War II, certainly Vietnam, Korean War, and a whole bunch of other things including Desert Storm, and all the other conflicts that we have. So even though we are excited for hot dogs and apple pie and the beginning of summer, so to speak, when Memorial Day rolls around every year, I think it is even more important that we take time to pause and reflect and honor those who have died and given the ultimate sacrifice to defend our country because freedom is not free. And again, take a moment of silence. Even though Veterans Day is the observation of those that are currently serving, it's always nice to remind those of you that know somebody in the military today when Memorial Day rolls around to also thank them for their service. Obviously even though they haven't passed away, but is obviously put together in one big fell swoop in terms of how we honor our military.
With that, I would like to introduce our panel of investing experts today, 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've got three key economic releases for you this week, first beginning with the major report for the week, which was the consumer price index measure of inflation. Month over month, for the month of April both all items in core inflation excluding food and energy came in at a 0.2% growth rate for the month of April. Which was fairly decent, but still not going significantly lower as we continue to talk about inflation being stagnant, but again, it is still good news going in the right direction. Similarly, the year-over-year numbers for April of ‘25 showed all items going up 2.3%, which was slightly lower than March, and core was up 2.8%, which was the same as March. We will talk with our panel today what this means relative to having inflation before tariffs and having inflation with the potential implication of tariffs as we go forward with the news coming out of Washington.
Second, retail sales on the Advance Monthly Sales report for April of 2020-25 came in at only a 0.1%, which was fairly low, but that was after a robust March which came in at a +1.7% for month over month So, again, we talk about this advanced buying with respect to the potential tariffs being levied. So, March was a fairly robust month. We did anticipate there might be a pullback coming in April to equalize some of that advanced buying and it seems like we do at least preliminarily see that at up only 0.1%.
And finally, or third, the industrial production for the manufacturing side of the economy came in for the month of April at flat. Which is up 0.0% which was slightly good news because it had come off the heels of March which was a decline of 0.3%. So we're headed again in the right direction as this number does tend to jump around month to month. But overall, that's a fairly decent report at even being flat for the month of April.
So with that, let's turn to George to get his reaction on some of the economic data, and also, what we've been usually doing on a week-to-week basis is get an update on some tariffs, which was the big news also beginning Monday of this week, when we got some preliminary data on a U.S.-China agreement on tariffs and the potential reduction of the tariffs that were proposed by President Trump back on April 2nd, so we will look at that. George, what are your thoughts?

George Mateyo [00:05:18] So Brian, I think the big news of the week, as you mentioned, really focused on the tariff situation. The economic data itself, I think, was probably okay overall. I mean, there were some puts and takes, as you mentioned. And I think that in some extent, you know, we haven't really seen the full impact of tariffs show up in the data. And that doesn't mean that tariffs won't impact the economy, it just means that tariffs haven't impacted the data yet. And as we said before in some of these conversations in other places, too: there'll probably be a time where the data does get a little bit worrisome and maybe a little bit soft or ugly or whatever description you want to put on it. But I do think that there's probably still some more implications for the economy based on the fact that tariffs really haven't impacted the data yet, as I just said.
So that said, I think the tariff news that really kind of kind of catalyzed this market, of course, was late Sunday, early Monday, when it seemed as if there was a pretty big shift in tone, both from the Chinese and also from our government around tariffs on each other. And that resulted in a significant risk on rally, and we've seen the markets respond favorably to that in the last few days. So it's a significant swing in sentiment and departure and a shift from where we were just a few weeks ago. And that's certainly welcome news. I still think there's some uncertainty about really what happens in 90 days. So we've essentially been on kind of pause now. And it's probably on one level, not necessarily a good thing in the sense it doesn’t know exactly how we end that, but it is good that people are talking. So when people are talking that usually leads to better outcomes, hopefully over the long run. And the announcements this week was also pretty constructive in the since that both parties, both the Chinese and both here in America, both stakeholders were actually kind of saying the same thing. We've seen similar situations when the stakeholders actually say contrasting things and that just leads to more confusion obviously, but it seemed like both parties were pretty aligned trying to get something done. And I think that's why the markets kind of took solace in that outcome.
But it's also curious to me that the economic data that's come out this week. You know, again, it's probably too early to say exactly what direction we're leaning, but it does seem that for now, inflation is kind of creeping up a little bit. The labor market is softening a little bit, so we have to keep our eyes open and be vigilant to those things as well. Also this morning the consumer sentiment numbers were really quite weak, and that's kind of interesting in the sense that we've seen ongoing now just the soft data continue to get softer, meaning survey data gets weaker, and it suggests that there's more concerns about the economy. But at the same time, consumers are still spending, and we've seen kind of a general steady state with respect to sales activity. Again, it did weaken a little bit in the past month, but it didn't really collapse at all. And then on the corporate side, where there's also some survey, data suggests that corporations, mainly treasurers and CFO and business leaders and board members. You know, those folks are also pretty pessimistic. Some of the data that suggests the overall sentiment around corporate activity is also pretty bleak.
But yet at the same time, Steve, we've actually seen M&A pick up and there were at least two big deals that I saw this week been announced that to me suggested corporations are feeling pretty good about themselves despite the fact that there's some headwinds to navigate. So as you think about this and now we've just kind of wrapped up early season, what's your takeaway with respect to corporations? How they actually kind of manage this volatility and what that really kind of bodes well for the market going forward.

Stephen Hoedt [00:08:29] So George, I think that the corporation's part of this and it comes down to one piece, and Rajeev can probably comment on this too, but it really jumped out to me this week that we had BB versus BBB credit spreads reach a new five-year low. Now ponder on that for a second, because literally less than a month ago, we saw high yield credit spreads blowing out relative to investment grade. And now we're at new five-year lows. So that tells me that the credit markets are open. And in that kind of an environment, if you're looking to do a transaction, I think you're taking advantage of it. So I mean, I really think the spread move there to me has been really the big piece of news this week. That bodes well for equities over the near to intermediate term as well, because if credit is at new all-time lows, that suggests that equities have the potential to move to all- time highs. Now, I'm not making the call for that. I don't think that's our base case here, but it was kind of an eye-opener for me this week.
When I think about how earnings have played out, you know, this is going to be an interesting question as we move through the balance of the year, because to your point, I don't think that the tariff news and that kind of stuff is fully reflected in what has been going on with earnings. Earnings are a little bit lower than they were a month or so ago, but the multiple that people are willing to pay for it has exploded back up to 21.5 times, which again, we're back toward the top end of the trading range there.
And when I look at some measures of sentiment, such as put call ratios and things like this, it tells me that sentiment has started to get frothy again. So, you know, I think where we're at here is that the rebound has been sharp. There's been a change in news flow from bad to less bad. And I think people anticipate that the news from here likely is more positive incrementally than negative. And so you've got that as a potential tailwind as we head into the summer. But at the same time, if we do start to see earnings numbers tick down and the fact that the multiples are as high as they are with sentiment frothy again, it suggests to me that maybe near term, you know, we've got some consolidation is more likely than just a rip to new all-time highs.

George Mateyo [00:11:09] So let's stick with the theme for a second, Rajeev, and kick it over to you. Can you give us your take on it? Obviously when corporations are spending money like they're spending - and Steve and I both reference that - that's healthy for the equity market, but bond markets might not take that as comforting in the sense that corporations are probably taking more debt on the balance sheet at the same time, too. So how do you balance that? How do you read through the economy? What are the economic read throughs in terms of those activities from your perspective?

Rajeev Sharma [00:11:36] Steve's point that he made about the credit markets. I mean, I think the risk on trade is alive and well with the credit markets. To Steve's point, investment grade spreads - they tightened about three basis points this week. High yield credits spread are tighter by about seven basis points this week.
You saw a bunch of corporate issuances come out this week. New deals are being priced. Once again, very little concessions on these new deals. They're coming in really tight to where secondary bonds are trading. And the reason they can do that is because there's this huge demand for corporate paper, especially high-quality paper. And we've been big advocates of high-quality securities for quite a while now. We feel that those are the names that you can get decent yields on. And they're also able to withstand any downturns in the economy. So there's this big push from corporate treasurers to come out there with new deals. They waited for the CPI print to come out this week and as soon as that print was done you saw a big wave of corporate issuance and I think we're going to continue to see that. Generally summer months are are a little more quiet for corporate issuance, but for the last couple of years we haven't seen any slowdown in corporate issuance in the summer either. So there's this huge supply-demand technical that's out there, there's just not enough supply out there to satisfy investor demand for corporate paper, especially as I mentioned, high-quality paper.
We did see some other things in the market this week. We did see bond yields rise during the week and they hit some key resistance points. A lot of this had to do with this heavy supply of mortgage-backed securities that hit the market. That did take the 10-year Treasury Note yield to above 4.5% midweek. Flows remain pretty moderate in Treasuries, but those MBS deals they totaled about three billion dollars and they came out on Tuesday with further follow through on Wednesday. So this issuance was not being met with any real demand. Nobody's really bulking up on their MBS exposure right now, but it did see an impact to Treasuries.
The benchmark for mortgage rates is the 10-year Treasury bond. And that's where we saw a rise in the 10-year during the week. And that resistance point that I'm talking about on the 10-year is 4.5%. And the resistance point on the 30-year treasury note is 5%. Both of those were met pretty quickly this week. But then a lot of this got reversed as we started beginning Friday trading. Treasuries seem to have an oversold status and then you saw buyers step in that were waiting on the sidelines for a good entry point, and they found that good entry point. So after touching those highs, these are the highest levels that we saw in yields in over a month. On Thursday, we're seeing those retreat now. Tens and Thirties have all come down. The 10-year is now trading on 4.39%. The 30-year’s trading at 4.86%. So again, we've retreated from those resistance points. We could see yields continue to fall in the coming days. You have banks and money managers putting money to work. Specifically in the twos, fives, and ten-year space, you have no shortage of headline risk related to tariffs, tax policy and geopolitics. But, you had that softer than expected PPI data that helped yields move lower.
The recent bond rally is getting support from two press releases that came out this week as well. And these were in relation to the regulation-exempt Treasuries from the supplementary leverage ratio, which is SLR. Now the SLR is a ratio of banks tier one capital to their total leverage exposure. And right now, Treasuries are not excluded from that denominator. So they currently lower banks SLRs through discouraging Treasury ownership by banks. So there was this Thursday SIFMA released a statement urging regulators to exempt treasuries from that ratio. And so banks could buy more treasuries. So you saw that impact on the Treasuries as well. You saw Treasury yields start to drop lower during the week.
At the same time, the House Committee on Financial Service has also released a statement on the importance of highly liquid treasury markets. And I think that's also something that's been adding a lot of support to the treasury market in providing this bond rally that we're seeing in the late part of this week. And then you also had Treasury Secretary Scott Bessent emphasizing SLR reform.
So all of that being combined, we also heard from Fed Chair Powell this week as well. He spoke at a research conference this week and he discussed Fed policy and the framework, and how it needs to be reviewed. He pretty much said that the U.S. economy will face even more supply shocks in the near term. And monetary policy is becoming increasingly challenging to monitor and to handle right now with the way the economy is progressing. He reiterated the need for inflation to meet the Fed's 2% target. But it almost seemed like he was giving a little bit of flex there about that 2% target. I think that there's a lot of theories out there that will he change the goalpost, is 2% still the target? He didn't really go as far as committing to that, but he did say that we're not going to enter a near-zero interest rate regime again. And I think that's going to be very important. It almost seemed like Powell's a little more focused on employment shortfalls at the time being.
So it's been an interesting week. I think we're gonna continue to see Treasury yields be range bound. There's a lot of soft economic data that's coming out next week, so that shouldn't really push yields higher. So we could be in this range for quite a bit at this point.

George Mateyo [00:16:41] That's a great overview of the corporate market and some of the interplay with the Fed. But I'm kind of curious to know, Rajeev, your thoughts on debt issuance, the amount of issuances on the corporate sector? What are your thoughts or what are you sharing with respect to the federal sector, the government around tax cuts. You know, if we have a big tax package, you know, that probably means we have to borrow more as a country. We obviously have the debt ceiling that's kind of looming out there. I think Treasury Secretary Bessent was on the tape last week this time saying that, you know, we've got enough money to get through until August. And then we're going to have this discussion, which we always seem to have every two years around the debt ceiling. But what do you hear in respect to any concerns from investors on Treasuries themselves as it's kind of a reserve currency and the reserve investment of choice.

Rajeev Sharma [00:17:30] There's been a lot of headline risk. I totally agree with you, George, about kicking the can down the road. It seems like we do that every few months as far as the debt ceiling talks go. We do have this tax reform package that Trump's bringing to the table. There are some concerns whether that can actually get done or not. Obviously, it's going to cost. The debt, the federal deficit will definitely increase with that tax package, but it would spur the economy if they could get that through. I do feel that there is a lot of concern right now about the debt situation in the U.S. What's interesting to me though is you're not seeing foreign participants, you know, shying away from the Treasury market. As long as that support is still there and it's almost 30% of the Treasury market right now. As long as we have that support from foreign investors, I think that Treasuries should not blow out too far from where we are right now. That being said, I do think that the tax package and tax policy are going to be extremely important. Another factor for the Fed to think about as well. And when we think about the growth in this country. But everybody knows that it's not sustainable, the debt levels that we have in this country. And I think that unless we get some kind of reform. It's going to make things very sticky as far as how we continue as an economy.

George Mateyo [00:18:44] So I would just close by saying I think that's an important thing to watch as we get to the summer and you know, we've talked a lot about diversification and diversification is something that frankly didn't work very well in 2023 and 2024. When you had a really concentrated rally, meaning that most investors benefited from a rising - call it seven or eight stocks in the S&P 500 - and not much else. And this year we've seen the inverse of that. We've seen markets broaden out. We've actually seen greater up performance from international markets. And if there is a concern that Rajeev talked about with respect to our sovereignty and really kind of the solvency of the U.S., which I think is probably a bridge too far to think that's a risk. But I think we have to be mindful of the fact that people really should be diversified as much as possible in this environment, knowing the outcomes are pretty extreme and pretty wide ranging. And as we said before, because of the impact of tariffs really haven't been felt, I think it's important to really take stock of your and can be diversified as possible as we go through the next few months.

Brian Pietrangelo [00:19:38] Well, thanks for the conversation today, George, Stephen, 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 in two weeks. Again, taking a pause next Friday on the 23rd for the observance of Memorial Day. So we'll see how the world and the markets have changed two weeks from now and provide those keys to help you navigate your financial journey.

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