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 29th, 2025. I'm Brian Pietrangelo and welcome to the podcast

As we head into the weekend, we mark the last trading day of August, and we also mark the upcoming Labor Day on Monday, which is the federal holiday in the United States celebrated on the first Monday of September to honor and recognize the American labor movement and the works and contributions of laborers to the development and achievement in the States. It also marks the unofficial end to summer, as many people do look at this rather than the clock on the sun, so to speak, and so always have an opportunity for, again, picnics and holidays, the start of college football season, and a whole bunch of other things to enjoy with friends and family with the extra day off on Monday. In addition, very sad note this week with the tragedies in Minneapolis, so I do want to take a small moment of silence to recognize those horrific acts and really just think about the families. And those that were affected. Thank you for joining me with that pause as we return to our program. We'd like to introduce our panel of investing experts here to share their insights when 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 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 news, we've got three clean updates for you on the economic release calendar. The first one beginning with the initial unemployment claims report that came out yesterday for the weekend in August 23rd at 229,000. Now this is down 5,000 from the prior week and actually is good news that the number remains stable.

And second also yesterday was the second estimate for the second quarter of 2025 real GDP or gross domestic product. Again, relatively good news there, in that the second estimate was 3.3% for the quarter, which was higher than the first estimate, which was 3,0%. So a little bit of an uptick in that number, driven by healthy consumer spending.

And third, just this morning, the Personal Consumption Expenditures and its respective The inflation report came out for the month of July. The consumer spending numbers did show an increase for the month of July of 0.3%, though that was decent and quite healthy from the prior two months in June and May, so good news there headed in the direction for the overall strength of the consumer. For the month, a lot of that was driven by overall motor vehicle and parts spending, Which again was part of the overall gain that we saw in July More importantly, the other part of that report and economic release comes to the PCE or Personal Consumption Expenditures Measure of Inflation, which of course is the Federal Reserve's preferred measure, and we see that on a month-over-month basis came in roughly at expectations. However, if we look at the year-over year number, we do see that the overall personal consumption expenditures came in at 2.6 percent for July, which was the same as June. However, if we look at the other number that is oftentimes reported, which is PCE inflation, excluding food and energy, also known as core PCE, inflation, we got a little bit of an uptick in the wrong direction where the year-over-year number for July was 2.9%, which was higher by one-tenth of a percent from June at 2.8 and May at 2,7. So not heading in the right direction in terms of the overall increase as we do look at the prior four months. We do see a tick up each month of one tenth of one percent going from 2.6 in April to 2.7 in May to 2 .8 in June to 2 9 in July. Overall, this does have implications for the Federal Reserve Open Market Committee policy coming up on September 17th, so we'll get more reaction from that from our panel.

That being the case, let's turn to Steve first to get his reaction for what was going on in the overall stock market this week and other thoughts and observations that he has. Steve?

Stephen Hoedt [00:04:43] And it's been an interesting last week of August, given that it was supposed to be quiet, and yet we had Nvidia's earnings and we had a lot of stuff going on in D.C. With the Fed and the administration. The equity market kind of shrugged all of it off. We continue to make new highs, but it has been quiet. We're selling off a little bit today on Friday. And the Nvidia numbers essentially, in my view, were a push. They gave the market, though, I think an opportunity to maybe hit pause over over the next couple of weeks, next few weeks. The numbers were good enough. But there were also some questions about growth in there. And you know, just how good could it be relative to expectations going forward? And, you know I think if you you look the stock itself has gone sideways for the last month, roughly coming into the number. And there was nothing there that caused expectations to get away to the upside. So I think that, you know, as we head into what is very clearly a period of time where historically the seasonals are negative from now through mid-October, the earnings number out of NVIDIA kind of gives the market pause or an opportunity to hit pause and refresh itself here for a little bit. As I said, nothing to get a way to the up side.

Now, the interesting stuff out of DC, though, is certainly a thing the market's been paying attention to, but it seems like equity markets have been shrugging it off. But don't really think the bond market has. If you take a look at the 30-year yield relative to the five-year inflation adjusted tips yield, that number has continued to move markedly higher as it has over the last few months as the Fed's independences come under assault. I mean, there are some real questions that are burning there that as we start to head into a rate cutting cycle, I think are going to become really front and center for the market as we head into the back end of the year and head into the fourth quarter.

George Mateyo [00:07:05] Well, I guess we can get into that, Steve. I think it's, you know, we'll quickly kind of just kind of talk about the economy, first of all, and recap some of the things that Brian said just to bring listeners from the current in terms of where we are for the backdrop overall. You know, the economy thus far has been pretty resilient. Of course, this is really old news now, but the second quarter GDP report was out that Brian alluded to, and it was rise higher. Again, I think a lot of that, as we've talked about, was somewhat kind of driven by these. Up and down kind of indicators with respect to trade, which kind of blurs the real picture, but overall it seems like the economy is still somewhat resilient. More fresh data suggests that the consumer is still spending pretty well, but inflation, as you noted, is still still somewhat elevated. So long as inflation expectations don't get out of hand, the Fed might still be inclined to cut rates, but we do, again, have to be mindful of the fact that stay inflation is still a real thing, and that doesn't really get resolved quickly.

But to your point, really, Steve, I guess around this brouhaha that's happening in Washington, it seems like it's probably a real event and it's something that we have to pay attention to. Of course, we don't want to wade into the politics, but we have think about the policy implications. So while we're not going to be political about this, I think we do have to be eyes wide open with respect to policy implications. And they didn't know, Rajeev, if you had any thoughts of whether this actually alter the course for the Fed to start cutting rates as related next month.

Rajeev Sharma [00:08:29] I mean, it's a very good question, George. I mean the independence of the Fed is something that pops its head up quite a bit in more recent times and with something like this, what's happening to Lisa Cook, and if these were to come true and she is forced to exit her position, you start thinking about the composition of the fed at that point. Marcus starts believing that you'll get more dovish governors coming on to the Fed as fed members. And that would lead to more aggressive rate cuts going forward, or at least more descent within the Fed.

And I think that's something that in the near term, you're seeing it on the front end of the yield curve. You're seeing yields move lower when you have these kinds of questions, because you're, the market's really looking at, okay, we're going to get more rate cuts and the front end is more sensitive to monetary policy. But to Steve's point, when you go further out in the curve, you start seeing the ramifications of an assault on the independence of the Fed, and you start seeing yields being much higher. And so that's leading to more steepening of the yield curve that we've seen throughout the year. We saw it last year, it began towards the end of last year. That steepening curve is continuing, that trade continues to be alive and well. Many people are still focused on the front end of the old curve. But again, I think the broader ramifications and far-term implications of Fed losing the credibility of their independence, I think that's gonna be an issue that needs to be fleshed out in the coming days.

George Mateyo [00:09:53] So Steve, if this does come to fruition where we start to see some changes, more changes within respect to the composition of the Federal Reserve, and it seems to me that we're already kind of getting that policy impulse already priced in the market with respect to rate cuts that Rajiv talked about as early as next month. Then what do you think this holds true for the equity market? I mean, the equity market, as far as you mentioned, has been fairly resilient and maybe shrugging some of these concerns off. But, you know, again, if we have inflation kind of moved to the upside, what does that suggest for earnings, corporate profits and the overall market?

Stephen Hoedt [00:10:23] Well, it's good in the short term, or maybe even the intermediate term, and long term, it's problematic. So what you see typically when the market sets up with high nominal GDP growth. Is you see earnings numbers move strongly to the upside, and you see the market respond to that. And that's exactly what we're in. I mean, in an accommodative market, the more, or a Fed, the more accommodative the Fed gets, the higher we're likely to see nominal GDP run, or the hotter we're like likely to run. There is going to be inflation that runs hot in there though, right? And that is the thing that longer term causes the problem. There are economists who refer to this as a crack-up boom, where you can get kind of a blow-off phase in the market and the economy based on things running very hot with high inflation and relatively high inflation. And we'll see if that's what we get out of this.

But it really does start to ring true to me as somebody who's been around longer than I may like to admit that there are a lot of echoes between the policy setup today and the policy set up that ran into the bubble peak in the late 90s and early 2000s. So I think it's something to pay attention to as an investor here as we head into the back end of the year and look at the policy backdrop that that we're likely to get. And again. I'm not saying that the market today is like the market in the late 90s. So the tech market back then, if you remember, like GE would go up 15% a day because they rolled out GE.com, right? Like that's not the environment that we're in today, where pets.com has sock puppets on television and no earning, that kind of stuff. Like we don't have that kind of a mania that has enveloped around the AI theme. It's not the same. The earnings contribution of the tech companies to the S&P 500, I mean, these are the most profitable companies in the index. They contribute almost 25% of the earnings of the S& P 500 now. Back in the 90s, they contributed less than 10% of the earning to the S&P 500 when they were more than double that in the in the index today, it's much different. So I'm not saying that this is the same. But there are echoes of it, and there are certainly echoes of it from a policy perspective of getting an uber accommodative fed into a hot economy.

Brian Pietrangelo [00:13:14] And Rajeev, before we finish, give your thoughts on the upcoming 17th of September, Federal Open Market Committee thoughts for the rate cut. But more importantly, beyond that meeting, what's your thoughts?

Rajeev Sharma [00:13:23] I mean, we did get the PC numbers. They did come out. They did very little for the Fed or the market. Each component was fairly in line with market expectations. So I don't believe today's numbers, the PC numbers take away the focus from the Fed. The market has taken comfort in this, the latest inflation prints. And even though we see stubborn inflation, the odds of a 25 base point rate cut at the September 17th FOMC meeting still remain at 88%. So going into the inflation report, the PC report, they were at 88%, coming out of it, they're still at 88%. So the momentum that these odds will stay around there for now, that we get that September rate cut are still pretty high. Going forward after that, the odds still remain that we'd get two rate cuts for the market expectation that we got two rate cut by year end. That would be 50 basis points total. I think the only thing that can really move this momentum anyway in a different direction would be the jobs number that we get out at the end of next week.

Brian Pietrangelo [00:14:21] George will give you the final word for today's podcast, any thoughts you want to share with our listeners.

George Mateyo [00:14:26] Sure, Brian. I think it's important just to kind of keep things in perspective. There are some things that are showing some signs of stress and some concern. As I said earlier, though, I think it's really important to separate policy from politics. And policy is important. And we've talked about probably the main major policy point that we have to think about for the second half, which is what happens with the Fed. And the Fed is to think about inflation and growth and so forth. And those are the more important levers. Again, I could probably point, a lot of activity that could kind of ensue in the next few weeks, that could be pretty disruptive and maybe some mechanic and somewhat unsettling.

But if we can push that off the side as best we can, compartmentalize it a little bit, and just keep things in perspective, most people have a plan that they put in place when they thought about investing. And more than ever, I think you have to revisit that plan and stick to the plan if nothing else. I think, again, we might see a lot volatility on headlines and some other things as well. So long as the economy holds up fairly well, Steve pointed out the fact that we might actually see some modest upside if this kind of boom that he talked about really takes hold. It's hard to say for sure because I think it is a little different time than it was back in the late 90s that Steve also referenced. But I think it's important to stay balanced and really stay diversified. And we've tried to suggest for much of this year that diversification is cheap. In other words, there's a lot of things you can do to your portfolio at the margin, not in a big way, but things you can do at the margins to provide more diversification, which kind of is an excuse for actually admitting that you don't know what's going to happen next. So I think it's a point to be diversified and be disciplined and really let your plan work for yourself.

Brian Pietrangelo [00:16:03] Thanks for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. In addition, we've got a program note for you. We are hosting our quarterly national call that will be held on September 18th, 2025, at 1 p.m. Eastern. Again, September 18 at 1p.m Eastern. We've got a tremendous topic for you and a tremendous panel of speakers on the topic of artificial intelligence, and the title of our program is Artificial Intelligence, everything you're afraid to ask but you need to know. If you haven't yet received an invitation please reach out to your relationship manager and be signing up for that because I'm sure it will be packed given the topic of artificial intelligence. Again, put a little note on your calendar for September 18th at 1 p.m. Eastern. 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 them 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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