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, January 23rd, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We start today's podcast with a congratulations last Monday to the Indiana Hoosiers for the championship of the College Football Playoff series here in 2026. What A remarkable story for Coach Cignetti and all the players for winning that championship and running the table with an undefeated season. What a great, great story. And second, a little bit less known, today is actually National Handwriting Day. So that seems to be a lost art given the digitization that we all live in on a daily basis, but it might be worth writing a handwritten note to a friend, colleague, or a family member. Last year, I had the opportunity to receive a gift of one of the famous Mont Blanc pens, and I gotta tell you, it's really, really cool. So if you have an opportunity to do some handwriting, again, take advantage of it. With that, I would like to introduce our panel of investing experts here to share their insights on this week market activity and more. And on a regular basis, they put pen to paper to put their thoughts on the markets and the economy in writing as we do verbally here in the podcast. So welcome 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 four key updates for you on the economic front and three other updates on the markets. First up, we've got the weekly initial unemployment claims, which remain very stable, so no reason to give you an update because it's pretty good. On the second side, we've got the update for the gross domestic product for the third quarter of 2025. And the number came in at 4.4% with the updated estimate, which was up 1/10 of a percent from the initial estimate that came out. And again, some of these numbers are delayed due to the government shutdown that occurred last year, but nonetheless, pretty good news. The results reflect increases in consumer spending, also some government spending, as well as investments. And third, overall inflation as measured by the Personal Consumptions Expenditures Index, or known as PCE, came in fairly stable for the months of October and November with a two-month catch-up, and in general, it stayed the same, but it's still persistent. On a year-over-year basis, PCE expenditures were 2.8%, and excluding food and energy, it was also 2.8%. Now, this is important because PCE inflation is the Federal Reserve's preferred measure as looking at inflation in terms of trying to get to their target of 2%, which leads us to the 4th update, which is that the Federal Open Market Committee meeting is next week, and we'll continue to watch that for exciting news. Now, in market and other news, we've got 3 updates. We have no update from the Supreme Court on President Trump's IEPA, or International Emergency Economic Powers Act, ruling yet. It has been estimated that there will be a ruling soon, but it might take some more time. Second, we also have the Supreme Court hearing from Governor Cook in terms of the Federal Reserve and the implications of her job in terms of overall stability regarding Trump's accusations around impropriety. The original tone of the hearing seemed to favor Governor Cook, and so we'll give you more information as that continues to come out in the newswires. And last, we've got updates from Steve on Q4 earnings and how we're going this far in the quarter, so we will start there. Steve, let's hear your thoughts on what's happening in the market and specifically your thoughts on Q4 earnings season. Steve?

Steven Hoedt [00:04:14]

Brian, when we look at earnings starting this week, earnings season kicking off in earnest, and for the S&P 500, we saw yet another climb higher in the index aggregate earnings as the companies that have reported have largely at least met enough expectations to have gotten fairly decent reaction out of the market. And we've seen the earnings line climb for the S&P up to $314, continuing to move up into the right. What we've said for quite a while is that we thought that this quarter's expectations were low enough that companies would be able to come in and do pretty well, and that's what we see so far. Now, clearly we're only about 15 to 20% of the way through earnings season. We've got the big companies coming in the next two weeks. So we'll have a little bit better read as we go through the next couple of weeks, how things are going to settle out. But as we sit today, right now, the bank earnings came in good across the board pretty much. And that was a really good sign for the market. So, nothing on the earnings front that looks like it's going to get in the way and derail derail what's happening on the price side is in terms of is move as in terms of moving higher. Um, you know, when you look at the S&P 500 for the week, um, essentially if you were to go on vacation this week and just not come back, you would look at it and go, oh, what happened this week? The market didn't go anywhere. Uh, we're because we're basically at the same place we were last Friday. Um, but that, that doesn't really encapsulate the story. Um, with kind of the Greenland reaction on Monday and giving us the opportunity to see the market when it opened on Tuesday, gap down. We basically spent the whole week recovering from that as things kind of backed off and came off the boil there. So, I think what we said from a price action perspective on Tuesday morning still holds, and that is that the market is near that 50-day moving average, which is up until the right sloping. Most of the pullbacks during the bull market phase that we've been in since April have been shallow and have been contained by the 50-day, and that we thought that this was no different this time in terms of being able to just kind of pull back and reset things. Now, we'd like to see the market move and make a new three-month high yet again, which right now is sitting at 69.86. The market today is at 69.20. So we need to get up close to 7,000 to start to see the market reassert itself to the upside. But what we see here right now, there's nothing nefarious in this price action at all. It kind of smells to us like the market is marking time while we get the earnings numbers out that we talked about at the top of the call. And if earnings come out the way that we think, we should see this market resolve itself to the upside. Now, underneath the hood, there's been a lot of stuff going on. Breadth has been good. which means we've seen a broadening out in the market beyond the MAG 7. But importantly, we've seen sector rotation and we've seen, as the MAG 7 names have come off, we've seen the 493, for lack of a better word, go up into the right and make new highs. But even more so under the hood from that, if you were to go in and look at technology stocks, for example, tech stocks peaked in October, they've been kind of weak. in as a group since October. Healthcare, on the other hand, has been going up into the right since last July. So there's been a clear rotation under the hood of this market toward kind of what I would call quality growth and away from, you know, a tech levered AI high growth kind of stuff that that stuff has come off the boil a little bit. And from our perspective, that's been a very healthy thing for this market because you've seen the this broadening out and participation. But the caveat to that is with 40% of the S&P 500's market cap tied up in those mega cap names, if those names are not rip-roaring off into the sunset, it creates a difficult environment for the index to make a lot of headway to the upside. So we believe that this is an environment that's really ripe for stock picking, for active management in particular, because you can come down and you can play in some of these 493 names. that seem to be garnering some positive momentum relative to the market cap leaders that have kind of dominated trading since we came out of the pandemic, at least. So we think that this is a really intriguing market right now, Brian, as we get through here into the third week of January.

Brian Pietrangelo [00:09:29]

Great summary, Steve. And we talked about going on vacation this week and coming back and seeing nothing, but the VIX did pop up a little bit. And I would ask your opinion that it's really more due to some news and noise that we hear rather than some really market underlying fear.

Steve Hoedt [00:09:42]

That's correct. You know, the VIX had gotten down to levels that were very, very low. You know, when you're down in that 14 area, it gets to be It doesn't take much to make it move, let's put it that way. So when you've got kind of this surprise reaction to the Greenland stuff over the weekend, it was not a great shock to see volatility pop on the open on Tuesday. We don't see it, though, as being anything nefarious. It's a normal reaction to the market. It would take a significant shock higher in volatility to derail the good things right now. And we just don't see, at least right now, anything that would do that. Thank you, Steve.

Brian Pietrangelo [00:10:33]

Now let's turn to Rajeev to talk a little bit about the bond market leading off with the PCE inflation report that we got this week and what it may or may not mean anything for the Fed meeting next week. Rajeev?

Rajeev Sharma [00:10:44]

Well, Brian, yeah, you're absolutely right. We did see that PCE data that did come out this week. The market took it for what it was. It was stale information. Even if the headline number was slightly better than consensus in some areas, what it did do is validate the Fed's rate cut decisions that they made last year. The PCE data on its own really didn't do much to signal any future amount of rate cuts or how deep we go with the rate cuts. But there were some highlights that did stand out, one being that this was the fourth time in a row that monthly core inflation is at or below the low 0.2%. That's a pace that's consistent with the Fed's 2% target. But again, the data is stale. And it's impacted by the government shutdown. So it doesn't really bring enough to change or clarify the inflation picture for the Fed or for the markets, for that matter. Now, yields this week across the Treasury curve, they moved quite a bit in respect to some of the points that Steve made. There was quite a bit of movement on the Treasury curve. And most of that movement happened after President Trump said he doesn't plan to use force to acquire Greenland. In fact, if you graph the intraday timeline of those comments, we would see the 10-year treasury note yield immediately fall about two basis points as the market heard, quote unquote, no military action. We also saw the curve re-steepen. So the differential between a two-year treasury note and a 10-year treasury note hit its narrowest level in four years. It's just about over 60 basis points. So the markets are back on focusing on other things now outside of Greenland. The market's back to focusing on earnings, growth and Fed policy. Now we do have a Fed meeting next week and the odds of a rate cut at that meeting are pretty much zero. The market has already been aligned with that. The market's not expecting any rate cuts to the midpoint of 2026. Traders appear a bit split on the timing of when that first rate cut will come in 2026. They are weighing between the June FOMC meeting and the July FOMC meeting and up to a couple of weeks ago, And right after the December FOMC meeting, I think the market was pretty much squarely focused on the June FOMC meeting being that meeting where we get our first rate cut. But those have kind of shifted towards July now. And that has a lot to do with the mixed data that's pointing to a lower unemployment rate and maybe a slight moderation in inflation. Now, you add to that questions about the independence of the Fed, these market expectations are likely to shift. As soon as we start getting more comments from Supreme Court justices that indicate whether they would rule in favor of Fed Governor Lisa Cook or the US government, early indications do point towards the fact that they're leaning towards Lisa Cook. So that, again, brings the question about Fed independence. And not only that, we have to contend with the fact that everybody knows Fed Chair Powell's term ends in May. There's a lot of headline news out there, who could be the next Fed Chair. And I think that we've heard about four or five contenders that are in that list. I think when we started this whole process, there are almost 11 people that could have been considered for the role. Now we've kind of narrowed down to a short list of about four to five contenders. Those include Michelle Bowman, Chris Waller, Kevin Warsh, and Rick Rieder. Trump told reporters that he expects to name a successor soon. And we also heard from Secretary Scott Bessent that said the president may decide as soon as next week. So the markets are closely watching this. Meanwhile, I mean, we haven't seen much on credit spreads. I mean, you know, Steve talked about the big drop that we saw right after the news hit the airwaves on Monday. And I believe beginning part of the week, we saw such a big drop in the S&P 500. If you try to map that against credit spreads, they hardly budged. Credit spreads have continually been in this extremely tight holding pattern that's even in the face of record amount of new issuance that we're seeing for the month of January. Credit spreads are just not wavering. The demand is so great for investment-grade corporate bonds that spreads remain tight to the point where many people are wondering if this is complacency that's set into the market. But there has to be some kind of catalyst for spreads to go wider, and Greenland was not that catalyst. Great, Rajeev. And let's go back to the Fed chair replacement. If you're a regular listener on this podcast, you know that has changed significantly in the last few weeks where Kevin Hassett used to be a leading candidate. What are your thoughts on why he's not anymore? You know, I think Trump really likes the role that Kevin Hassett is in right now. And he made the comments that he'd like to keep him in that role. And I think that really took away him from all the Polymarket and Kalshi websites out there. He was the front runner. And he actually came out, pretty much said that he'd be happy doing what he does right now. So, I really do think that that took him out of the running. He's not on those websites anymore. They're trying to make those odds. But I think it does come down to a pretty nice tight match right now of who it could be. A lot of eyes are on Kevin Warsh, and that's most likely the front runner at this point. It'll be interesting to see how that plays out, but it's going to be a name that's probably going to announce sooner rather than later.

Brian Pietrangelo [00:15:59]

Great. Thanks, Rajeev. And for our last segment of the podcast today, we're going to do a little bit of round robin between Steve and Rajeev, focusing on some of the Trump policies. Now, we all know that there's policies that are talked about. Some get implemented, some don't get implemented, and that's okay. But our job is to try and figure out what the implications, if some of the policies were to be implemented, what would it mean for the stock market, the bond market, and the economy? So let's start off with this limit on the credit card rates for 10%. What do you think that might mean for some of the banks, Steve? And then on your side, Rajeev, what does it mean for the markets?

Steve Hoedt [00:16:35]

So it wouldn't be good for the banks. Let's put it that way. It would be a mess to implement. Now, at the same time, you have seen a couple of large banks talk about rolling out products with a 10% interest rate limit on it, which is interesting to me. because it shows that they're trying to do something that the administration would view favorably in order not to have to have the wholesale change. So, you know, it seems to me that we are going to get something that pushes in that direction, but it's going to be more like on product innovation than it is going to be a wholesale change. Because at the end of the day, it takes an act of Congress to change the maximum or minimum rate that could be set on a credit card. And to be honest, there's been enough lobbying done that that's not likely going to happen anytime soon in Congress. So, it'll be something to watch. But from our chair, we don't see it as having a huge impact, at least near term.

Rajeev Sharma [00:17:49]

Yeah, and I would add that It's very interesting. And to Steve's point, the bank lobbying groups out there, I think they're going to definitely try their best not to let something like this happen. But if we do play this out, I think for the fixed income markets, the big impact on that 10% cap would be the $70 billion credit card ABS sector. We could see spread widening there. You could see reduced issuance of credit card ABS. I guess bank funding costs would drift higher as well. And If you look specifically within the fixed income corporate bond universe, I think there'd be wider spreads between subordinate and senior debt for banks. And that could be something very interesting to see because that spread has actually narrowed quite a bit over the last several years. Any widening of that would signal something there. So I think what we'd have to keep in charge. So far, right, we haven't seen too much widening on the news or the headlines, but sub-senior subordinate and senior debt would definitely widen out.

Steve Hoedt [00:18:50]

I mean, the market doesn't think anything's going to happen, I don't think. But the thing that I caution, and Brian, maybe it goes to the broader point on this, is that the administration, when they put out this stuff, it oftentimes sounds crazy and people don't think that anything's going to happen, but it's been kind of amazing to watch how... At the margin, at least, a lot of the stuff that they talk about, there is stuff that ends up getting done, no matter how quote unquote crazy it sounds when things come out in the first place. So I was skeptical originally when we heard about this, but I wouldn't doubt that at some point something happened.

Rajeev Sharma [00:19:34]

Yeah, and to that point, Scott Bessent came out this week and said the bank shouldn't be too worried because they're already going to get the benefit of the deregulation.

Steve Hoedt [00:19:41]

Yeah.

Brian Pietrangelo [00:19:43]

Very interesting. Very interesting. Our number two topic for today, Fannie and Freddie buying 200 million in mortgage backed bonds due to Trump's instructions. Is this actually happening, Rajeev? And what does it mean in the bond market? And then afterwards, Steve, what do you think it will mean? Does it actually prop up home buying?

Rajeev Sharma [00:20:03]

So what this really does, Brian, I think that, you know, puts downward pressure on mortgage rates. In the bond market, it's actually being viewed as a quantitative easing shock, and it would be one of the largest non-Fed interventions if it went through in the MBS market, mortgage-backed security market. So you're talking about a non-Fed intervention causing an artificial demand spike. And of course, it raises the questions about GSE independence. This is a very interesting thing that's being posed out there. It's also very interesting of what the impact it would be on homebuyers. Would it limit homebuyers in any way or limit how homebuyers look at this market? Rates start to come down because of this. I think that would be very interesting. But right now, I think it would-- the number one direct impact would be downward pressure on mortgage rates.

Brian Pietrangelo [00:20:59]

Just a quick program note before Steve gives his answer. My apologies for giving acronyms, but FANI is the Federal National Mortgage Association, and FREDI is the Federal Home Loan Mortgage Corporation. So these are GSEs or government sponsored enterprises that are pseudo government entities that help in the mortgage market. So, Steve, with that backdrop, as an education, just what are your thoughts on house demand and supply from this?

Steve Hoedt [00:21:22]

So I think it's hard to see exactly what the impact is going to be. It should be a little bit positive at the margin if mortgage rates do come down as a result of this. You know, that's been one of the things that the administration has been trying to do is to get some kind of movement into the home market, because I think that there has been a bit of stapest as we've had mortgage rates kind of stuck around levels that have been a lot higher than what they've been over the last 10 years. At the same time for us, it really does though come down to the signaling about the economy. And the fact, this is another way to kind of play that deregulation angle. At the end of the day, they're going to pull as many levers as possible to do as much as they can in order to make the economy run hot. And that is a bullish setup for both the economy running hot at, say, what, 5% GDP to throw a number out. And then that that translates directly through the earnings, which pushes stock prices higher. So from our perspective, this is a really strong backdrop for stocks and for the economy should be that should flow through the house prices, too, Brian, at the end of the day. And I think if people are if people have jobs because of this or whatever, it it'll push, push, continue to push things up to the right.

Brian Pietrangelo [00:22:56]

Great. And Steve, why don't you finish the third topic with your comments here on the podcast on housing with President Trump's insinuation of tapping and having no institutional buyers purchasing homes and leaving it to regular homeowners. What are your thoughts on that? And that'll conclude the podcast.

Steve Hoedt [00:23:13]

Yeah, they've had, there have been institutional buying in the home market that has reduced supply. whether it's private equity firms that have gotten involved in the space or a couple publicly traded REITs that have gotten fairly large. I would tell you that at the margin, we don't think that the impact on the market has been all that huge from this, but there has been some. You can't say there's been none. And I think the signaling is very important that, again, they're going to try to do things to help regular people as opposed to setting up the system to benefit these corporate entities or private equity. And at the margin, that's a populist message that the administration ran on. And I think that when they say things like this, you need to take them at their word and they'll likely follow through on it. So, I think that there's, there will definitely be impacts. Exactly what they're going to be, I don't know, but I think we're going to have to watch it because when they say something, you take them at their word. And I think that there will be some kind of action on this, Brian.

Brian Pietrangelo [00:24:29]

Well, thank you for the conversation today, Steve 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 next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:25:02]

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