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, May 8th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we head into the weekend, we do take time to celebrate on Sunday specifically for Mother's Day. So a shout out to everybody out there as a mother, grandmother, stepmother, and especially first-time mother and mothers-to-be. What a great opportunity to celebrate mothers out there. We hope you have a wonderful day. 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, Rajeev Sharma, Head of Fixed Income, and Sam Snyder, Director of Equity Research. 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 market continued to go up this week, Monday through Thursday. We'll get an update from Sam later on in the podcast. Overall, the situation in Iran had been calm up until yesterday on Thursday when things got a little bit disrupted. So we'll talk to George about that as well. In terms of economic releases, we've got two updates for you on productivity and purchasing, and then three updates for you on the employment labor market. So we'll get right to those updates. So first up, we've got the ISM Institute for Supply Management Services Sector, PMI, came in at 53.6, which was its 22nd consecutive months in expansion. However, if you take out a few months here or there, it's basically been in an expansion mode for about 5 years, so very strong on the services side of the economy. And second, we received information on productivity and costs from the Bureau of Labor Statistics for the first quarter of 2026. And non-farm business sector labor productivity came in at 2.9% for the year ending 12 months ago, that being first quarter of 2026. Ultimately, this has been an uptick for the prior four quarters, and 2.9% represents a pretty strong number. Now turning to our next three releases, they're all employment related. So third, we've got the initial unemployment claims on a weekly basis came in again at about 200,000, which remains considerably stable again for roughly the last two years in this corridor and around that 200,000 level. So this continues to be a good news in terms of initial unemployment claims. And 4th, job openings came in at about 6.9 million for the month of March, and that was pretty much very consistent with the prior month in February, also at 6.9 million. So that is again a number stable in terms of those employers anticipating hiring people, but also staying fairly flat. And just this morning, about 8.30 in the morning, we received the employment situation report from the Bureau of Labor Statistics, which gives us a couple key points of data. The first is new non-farm payrolls for the month. The second is the unemployment rate. So here are the details for our fifth and final economic release update. That is the employment situation that came in. And new non-farm payrolls came in at 115,000 for the month of April, which was better than consensus. In addition, the revisions for the prior two months were fairly mild, so overall net-net, the past few months have been pretty strong for the labor market. The second part of that report showed that the unemployment rate stayed the same at 4.3%, which was pretty much on consensus. So let's get right to it with our podcast guests and start with George with an update on what's happening in the Iran conflict with some recent updates in the last 24 hours, and then we'll move into the economic data. George, what are your thoughts?

George Mateyo [00:04:19]

So quickly on Iran, I think the situation is much the same from the prior week, Brian. We haven't seen too much forward progress. We haven't seen too much backward sliding or degradation into a re-escalation of the conflict. I mean, there were some fits and starts, and I think the market kind of took heart in the fact that apparently there was a one-page memo of understanding, some type of MOU between the two parties that talked about a framework for a discussion or a deal, at least to kind of get people to the table again. There might have been some false hope in that, but nonetheless, I think the market view that is a better outcome than a more protracted engaged conflict. And again, there are several rumors around additional tax thereafter, but I think overall we're still kind of staying the same place we were this time last week, so not too much change there. And again, I think the bigger impact for the economy is how long this conflict might last. And of course, we have to watch the price of oil to really understand that. And as we get to the summer, I think it'll be important to see how that plays out in terms of prices at the pump and so forth. So dovetailing that into the economic readings this morning, I do think it's important to watch the conflict of Iran in Iran and in the Middle East with respect to wages. Wages came in this past month slightly smaller at a smaller increase than the prior month. So again, wages are still growing, but a slightly slower rate. And that's just important because when you have prices that pop as they are, certain segments of the economy will be impacted by that. And indeed, certain companies, when they reported earnings this past week, also talked about some pressures within the consumer. Some restaurant companies and some other food companies talked about really some straining economic pressures on the low end of the wage spectrum. And again, if wages are softening a little bit and prices are going up, then that just makes it really difficult for some consumers to make in meats, unfortunately. So I do think this is still the economic situation that bears close monitoring. The numbers themselves from the overall labor market suggests that the wages are softening a little bit. The number of jobs being created are still positive. But I think there too, there are some divergences and some really stark divergences with inside the overall labor market in the sense that there are certain segments that are doing quite well and adding jobs. There are other segments that are probably being impacted by AI and other things too. So we again have this divergences, these divergences within the labor market too. And that translates further into what we've seen in the stock market, which we'll get to in a second or two with Sam and talking about what's happening with the equity market. But my perspective, Rajeev, As I think about putting all this together, it suggests to me that the Fed's still on hold, frankly. I think there's still a stalemate too. There, of course, is some ongoing debate within the different members about what a new Fed share might bring in terms of him wanting to maybe lower rates. But based on today's reading, I don't really see the Fed doing anything in the near term, but maybe you see it differently. So how would you assess out the Fed direction going forward from here?

Rajeev Sharma [00:07:17]

Well, George, I would say that divergence is the theme with the Fed members right now. I think there's plenty of Fed members that feel that we should not be on an easing path right now. We had three dissents in the last FOMC meeting. I think the consensus is we have at least three dissents going forward as well. There's no urgency for the Fed to do anything right now as far as cutting rates. because the inflation picture is still murky. It's not where it's supposed to be for the Fed. I mean, we've heard from Fed Chair Powell in the past that if we don't get inflation at 2%, you can't cut rates. And everything could change with the new Fed Chair. You can have Kevin Warsh come in there and say, you know what, let's not have a hard target of 2%. Let's have a range. We've seen other central banks around the globe with a range, with the midpoint. For instance, Australia, 2% to 3% is their range, and they say the midpoint is 2.5%, and they've actually hiked rates three times already. So there is this growing consensus in the market that the Fed's not going to do anything. They're going to keep rates where they are. And if anything, there is about a 50% chance that there will be a rate hike sometime in early 2027. So things have changed quite a bit. from where we were at the start of the year. And you see that reflected in the yield curve this week. Obviously, any kind of peace talk, any kind of opportunity for the market to move away from the conflict in Iran would be welcomed. But as long as this conflict continues, I think the question about inflation is still there. How high does inflation go? How far away from the target do we go? That's going to be something to keep an eye on. We did see the 10-year treasury note yield decline from 4.425% on Monday to 4.366%, so about a 6 basis point decline in the 10-year. We had April's non-farm payrolls coming out higher than expected, so treasury yields trimmed earlier declines for that. I mean, we have an unemployment rate right now holding around steady at 4.3%, and that's right in line with forecast. And now the two-year Treasury note yield, which is most sensitive to Fed policy, we saw declines there by about 6 basis points this week to 3.889%. So bond investors are taking the job data in stride. There's less of a focus, in my opinion, on the labor market and more of a focus on inflation and how far away we get from the 2% target from the Fed. That's the second part of the Fed's dual mandate, and energy prices are front and center. So if you see oil elevated, You're not going to see a Fed in any rush to cut rates. Add to that the Treasury Department's quarterly refunding announcement that we saw this week. It was released and they said the Treasury would need to borrow more than $2 trillion from the private markets in fiscal 2026. But the number is high, but it's not really far away from what the estimates were. So the market took that in stride as well. And another area that the market is taking very much in stride is corporate bonds. We look at credit spreads. We saw some modest widening this week compared to treasuries. Specifically, we had one basis point of widening for investment grade bonds. We had two basis points of widening for high yield bonds. So for this week, unlike last week, corporate bonds did underperform U.S. treasuries on a relative basis, but investors are still hungry for corporate bonds. You still see inflows into the corporate bond market. You want to be playing in these names because you do get very good carry, good coupons on very, very high quality companies. The only thing is when we start seeing new issuance in corporate bonds, investors want to get compensated for that. So you're going to start seeing a few more basis points and concessions for these new deals. And I really think if you look under the hood for investor grade, you still have value in the financial sector, which trades wide to other sectors. So I think investors are really picking and choosing right now where they want to invest. I still believe corporate bonds over US treasuries. And I think that the carry there makes a big argument for that.

Brian Pietrangelo [00:11:37]

So, Rajeev, before we let you go, let's keep our listeners up to speed. We're a week away from Fed Chair Powell's expiration of his chair position, and we're still waiting for Senate confirmation on Kevin Warsh, which is expected to happen next week sometime before the 15th. But one other subtlety, because he's staying on one of the doves, Stephen Miran will no longer have a seat at the table. What are your thoughts on that?

Rajeev Sharma [00:12:02]

Well, Stephen Miran made a lot of noise about cutting rates. I mean, he's been a very big advocate for, you know, we should be doing jumbo rate cuts. I think the first time he was able to vote, he voted for 50 basis points. He, after that, continued to vote for 25 basis points. I do think it's gonna be interesting to keep Fed Chair Powell as a governor. because I do think that there is a lot of goodwill that he's created in the Fed, and they will support a lot of his ideas. I think the bar for Kevin Warsh to cut rates has risen. It's not going to be as easy as many people have thought that Kevin Warsh gets elected, gets nominated, and he goes in there and starts cutting rates. We must remind our listeners that you need consensus, and I think that Kevin Warsh has a big job in front of him to get that kind of consensus.

Brian Pietrangelo [00:12:54]

Great. Thanks, Rajeev. And now let's bring in Sam Snyder, Director of Investment Research on our equity team, to give us an update on the stock market and what's happening in that area. So, Sam, give us a thought on what's happening this week.

Sam Snyder [00:13:06]

Hey, Brian. Thanks for having me. S&P 500 is up over 2% this week on improvements in the situation in Iran, along with impressive earnings in the first quarter. Mostly tech stocks have been moving up and down. Consumer is hung in there with further evidence of the K-shaped economy, as George had mentioned earlier. In short, gas prices hurt the middle income consumer and the tax refunds tend to benefit the higher income consumer. Importantly, gas prices are, you know, more psychological approximate impact, whereas tax refunds tend to trickle out throughout the year. And you heard that in some of the companies that reported this past week. So also this week, So a lot of smaller cap tech names report, but the CPU providers like Intel and AMD really blew expectations out of the water. Some of these names are just surpassing.com peaks, which really goes to show how important it is to be conscious of price paid despite bullish narratives. As the quote from Warren Buffett goes, Price is what you pay and value is what you get. So we keep that in mind on the team here. Looking beyond the household names, there's many players that are attached to the AI data center trade that have been having quite the run lately, broadening out that we've talked about on last week's podcast continues. Though the magnitude of these moves seems a little outrageous, particularly in the analog semiconductor space. In the past month, we've seen some of the old winners like NVIDIA, Broadcom hand the baton to these smaller names that have jumped in some cases, 50% in a matter of days or weeks. So this market almost feels, I would characterize it as a little like a game of whack-a-mole. And I've never seen a market move this fast in my career, and we're doing our best to keep up by skating to where the puck's going, not where it's been. Clearly, the market's, it's begun to focus on the industrial and consumer implementation of AI capabilities, which we identified a few months ago. And we think networking buildout could be the next bottleneck. This market speed really has made it tough for active equity managers this year.

Brian Pietrangelo [00:15:20]

Yes, Sam, give me one other idea, and that is, what are you seeing in the markets beyond those headlines you just mentioned and the tech companies?

Sam Snyder [00:15:30]

Yeah, so non-tech related trend we've been focusing on has been the move in agricultural products, agricultural commodities, the war has clearly impacted fertilizer markets. That's well known at this point. We think, though, that the impact is not quite done. Whether you look at protein or grain markets, we're seeing the potential that prices go higher before they go lower for a few reasons. Higher prices have not induced new supply. You learn in Econ 101 that the cure for high prices, to an extent, is high prices. Though it seems that timing is left out of the equation, and that's where we think there's potential opportunity. If gas prices come in, we could potentially see demand pick back up, especially on the protein side. So you couple that with the supply not really coming in so far, and that equates to potentially higher prices in the near term. And then another segment of the commodities world last year and earlier into this year, which feels almost like a lifetime ago, precious metals were all the rage and oil was a consensus short and oversupply worries. I think it's important not to forget that that was only a few months ago. We think that as we swing back to perhaps a pre-war playbook, and not to be overly optimistic, but hopefully a pre-war playbook, precious metals and industrial metals alike could be an area of interest. The thesis here isn't that different than it was in January. So now that it looks as if the war situation is resolving itself a bit, or at least moving in the right direction. It'll be telling to see where some of these war impacted ideas settle.

Brian Pietrangelo [00:17:10]

Great, thanks. And our final segment, we'll go back to George. There's some sort of late breaking news in the last 24 hours or so with regard to tariffs and keeping our audience up to date on that. George, what are your thoughts?

George Mateyo [00:17:24]

Brian, what you're referring to, of course, are certain statutes with which the tariffs were first implemented. And yeah, this is the second time, I think, now that the administration has tried to enact some degree of tariffs, and various courts have decided that's not really quite allowable, frankly. I won't get into all the constitutionality of it and all the details, but suffice it to say, tariff rates are also probably not going to be as elevated as once thought. You know, it's curious, I still think trade is going to be a point of contention, probably a point of focus for the administration, especially as we enter the second-half of this year. And maybe after the midterms fade, because this is still something the administration thinks that it's within their power to try and effectuate in terms of real policy change. So I think it's still going to be with us, but I think the intensity, as we've discussed on this call and other places, is going to be less acute. And that's probably somewhat positive for the inflation backdrop, too. But I think the uncertainty is still going to be there. There is other news, Brian, beyond that, that the administration talked about trying to get the EU back able by, I think it was July 4th to also try and get a few trade concessions between us and the EU. So I don't think this is going to go away. This is not a story that's fading, but it's probably fading in terms of importance. And I think what Sam talked about, we talked a lot about AI policy. That's going to continue to be front and center for us as well. Politically speaking, of course, the midterms are going to start becoming more prominent with inside the overall narrative. So I think that the tariffs and the trade situation, while important, is probably going to be lower on the list in terms of overall market moving events.

Brian Pietrangelo [00:19:00]

Well, thanks for the conversation today, George, Rajeev, and Sam. 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.

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