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 20th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. I was on the road this week at an off-site meeting for our Key Wealth group and it was a tremendous opportunity to spend time with our colleagues as we focus on our teams and our ability to serve our clients in an exceptional manner. So what a great opportunity to get together with our team this week. And speaking of great teams, what a congratulations to the Olympic team for USA Women's Hockey as they won the gold medal yesterday in an overtime victory over Canada. What an exciting opportunity and again, sincere congratulations to the USA Women's Hockey team for taking home the gold. With that, I would like to introduce our team here on the Chief Investment Office as panels of investing experts who are 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 economic and market activity, it was a pretty light week in terms of economic releases until we got to today, so we have 3 updates of which we will cover those two from this morning at 8:30 here in our update of our top three. So first, beginning earlier in the week, we had the update on industrial production, which is covering the manufacturing industry, and we did see that there was some pretty positive signals coming out for the month of January, where industrial production was up 0.7% for the month. Now this is the preliminary estimate, but it's still pretty favorable at 0.7% because December's was at 0.2%, which was again a little bit above 0, obviously, and it was the third month in a row where we had positive activity in terms of that report. So industrial production fairly decent for the month of January. Now the other two updates were much larger in terms of their impact on the economy in terms of readings, so the second update we have for you is the GDP report that came out this morning at 8:30 (AM EST) from the Bureau of Economic Analysis, and it is the advance estimate or the first estimate for the fourth quarter of 2025. Now this report has been delayed due to the government shutdown that occurred in 2025, so we finally got the data here on February 20th. Now the report for real GDP came in at a 1.4% number for the fourth quarter of 2025, which was down from the third quarter of 2025, which was at a 4.4% number. So it looks like a pretty big drop in terms of activity in terms of overall real GDP. Consumer spending continued to be the largest driver of the overall GDP report in terms of its components, while government spending was a significant deceleration and a decline on a negative attribution to GDP. Now, some say this has something to do with the government shutdown back in the fourth quarter of 2025, obviously. I'm not so sure exactly what those numbers are correlated to, but again, it is part of the equation. And third, also this morning at 8:30, we also received the Personal Consumptions Expenditures Report, which includes not only consumer spending, but the inflation on the read there, also at 8:30 this morning. So PCE inflation came in a little bit hotter than expected on a month-over-month basis, not only for all items at 0.4% for the month, but core, excluding food and energy, also at 0.4% for the month. That also translates into the year-over-year number for the month ending in December, which showed a 2.9% all items increase and a core, excluding food and energy, at 3% increase. So both of these were up, which is not a favorable sign, hotter than expected, but not dramatic. So December's all items were 2.9%, which was up from 2.8% in November and 2.7% in October. The core, excluding food and energy, was up 3% year over year in December, which was up from 2.8% in both November and October. So inflation continues to be persistent and headed in the wrong direction. We'll talk with our panel about that and what it might mean for the Fed and the economy. So let's turn to you, George, for your commentary on those data points and what it might mean for the economy and additional thoughts that you might have. George?

George Mateyo [00:04:58]

Well, Brian, we're sitting here in Northeast Ohio, and I think overall the economic data kind of reminded me of the weather where it's just a bit soggy. And it doesn't mean that things are terrible or really rosy either. It just feels like kind of an overhang of kind of some soggy news where I think the numbers suggest that the economy is doing okay, maybe a little more sluggish than people thought. And I think, at least based on some of the growth numbers, but I think The inflation numbers also probably are somewhat soggy in the sense of probably a little bit heavier and a little bit hotter than people expected to. So I don't think anything is really falling apart, but I do think things are just in a state of sogginess, I guess. I'll just use that term again. And I think probably more than that, the market seems to be going through a series of questions about the ongoing strength of things. We've seen the weakness more recently in part to the credit market, particularly private credit. And I think that's one thing that's going to be an ongoing theme for much of this year. Private credit was a part of the market that grew a lot in the past several years, and now people are coming to realize that maybe some of that growth has some consequences. Importantly, from our perspective, I think credit, and in general anyway, is pretty solid, but I think it really is going to be contingent upon solid underwriting, and not everybody's going to come out pure from that. So I think there's going to be some choppiness there. We still have this ongoing situation around AI and what does that mean? That continues to be a source of disruption for many industries and companies. And that's probably going to be lingering for quite some time. It's also somewhat concerning or maybe causing people to question rather, what does AI do for the overall strength of the labor market and whether or not maybe as many jobs will be needed going forward because of AI. And then lastly, of course, geopolitically, we have a lot of things that we're trying to navigate our way through. It seems like tensions are starting to rise up again in the Middle East. And that's always been a source of volatility for the markets. So I think net-net, I just feel like there's a lot of general sogginess. I wouldn't call it anything worse than that. But I think the market's probably in for a bit of churning, as we've talked about for the last couple of calls here. And of course, we have to just navigate our way through that. So the best thing I think we probably would recommend doing is just being very diversified, knowing what you own, knowing why you own it, and being prepared for volatility, because it seems like that's going to be here for quite some time. At the same time, Rajeev, one thing I did mention, of course, is the ongoing uncertainty about the Fed and who's going to be leading the Fed. And that's still unresolved, I think mostly, at least he's not been confirmed yet. So, what do you think about this? And how do you think the Fed is actually processing what's happening more at the macro level from your perspective?

Rajeev Sharma [00:07:35]

Well, George, I think the Fed remains data dependent. I don't think we get any rate cuts under Fed Chair Powell anymore as his term is going to come to an end. But if you look at the data, and we saw the GDP numbers, we saw the PCE numbers, and I feel that the market is much more concerned with the PCE number. If you think about the upside surprise to inflation figures, that could be a concern for bond investors. If we look at the GDP figures, that should support treasuries. We did see a downshift in the U.S. economy, but it's all about the government shutdown, the impact on growth there. So the bond market didn't really look at the GDP numbers and really react too much to that, yields were slightly lower when that print came out. But the market was very fixated on PCE data because they know that the Fed, that's their preferred measure of inflation. And really, that changed everything with investors starting putting more weight on the hotter than expected inflation report. We saw yields move higher in the front end, and overall, the yield curve bear flattened. And if poor PCE stays around this 3% level, it's going to be increasingly difficult to get Fed consensus for two rate cuts for 2026. Again, one report doesn't make a trend, but I do think it changes expectations. And that's why yields are higher post the inflation report. And the PC report somewhat validates the Fed's emphasis on being data dependent and their continuing narrative for patience. Already heading into the inflation report, we saw demand for duration start to fade. And this is likely to be the first week of this month where we see yields higher across the curve. And then we also had the release of the FOMC minutes this week from the January FOMC meeting. And if you parse through those minutes, you will read that the Fed remains confident that it can somehow engineer a soft landing. The broad opinion was to keep rates where they are, keep it steady. And there seems to be little urgency to cut rates before having the supportive data to do so. Now, to be noted is that there's increasing divergence amongst Fed members. Some officials argued for a pause. And there were actually other members that argued for a rate hike if inflation re-accelerates. And that's noteworthy because the markets are pricing one direction right now. That's an easing path. So anything that changes that narrative, I think, does impact the bond market quite a bit. The minutes pushed back on the one direction of the Fed that we're going to be cutting rates. Cuts are not off the table, but the bar remains high. You need more disinflation to get that to happen. And on the other side of the bond market, if you look at credit spreads, investment-grade spreads, they were tighter on the week by one basis point, and high yield was tighter by five basis points this week. But for investment-grade, preparations are already underway for about $50 billion in new issuance next week. Add to that $183 billion in treasury coupon supply, and that's going to happen between Tuesday and Thursday. It's going to be concentrated on the two-year, the five-year, and the seven-year. So you could start to see rates start to move higher in the front end, primarily because you're going to have all the supply coming to market. And so I think that's going to be something important to keep an eye on.

George Mateyo [00:10:35]

I think, Steve, the other source of uncertainty, again, has to do with this AI issue, I guess I could call it broadly. We've seen certain industries really fall apart lately, and it seems like there's been some sort of great concentration around how they'll actually fare if AI really is kind of lives to its full potential and we start to see some of these things really take hold. I don't know if you've got. got a view on certain sectors or certain industries. But it does seem like we have been seeing invest become more discerning around AI. We've seen probably more uncertainty about the implications of that. At the same time, many companies actually seem quite the benefit from it in terms of actually it would probably result in greater productivity. So are you thinking anything differently about AI as you kind of navigate your way through earnings season? Any thoughts that you might have on that would be helpful too?

Steve Hoedt [00:11:25]

Well George, when you think about this, what's been interesting to me is to look at the reactions that the market has had. And I think it just goes to show how confused people are by what's going on. And I mentioned it on the call on Monday. But it really does feel like we're in a period of time when more change is happening in a shorter period of time than we've likely experienced in our investing lifetimes. So literally, you've had paradigms turned upside down. It's not a shock to see these large rotations happening underneath the hood of the market. And it goes a long way to explaining why you've got cyclical stocks outperforming year-to-date tech and the mega-cap names basically going sideways and consumer staples up at the same time. Because, again, people are confused. And I think that what you look at, tech is very difficult to try to sort out. Clearly, some of the enabling technology things that are more infrastructure and semiconductors are likely going to be clear winners. But once you go beyond that, there's not much in tech that isn't impacted by AI one way or the other. And people are not sure that it's impacted positively anymore because you've got very profitable business models that could be disintermediated. And if that's the case, you know that that again that that creates all kinds of problems and I'm thinking about the software industry in particular there but you know it's been a movable shooting gallery in terms of every industry every industry seems to be under the potential for people to decide that it could be another new industry of focus for what could be disrupted here so people are migrating toward hard assets, namely things like energy, materials, industrials, places that have things that have factories. You can't replace a factory with a AI generated software program. So people are going there and people got to eat. So they're buying staples. So I think that the response by investors is very logical. Go to the stuff that you know is not going to be going to have problems here and avoid the stuff that does. But what that's created for the market is I just was pulling up the S&P 500 chart again this morning as I get ready to do our weekly chart pack. And it struck me that the S&P 500 right now is at the same level that it was at the end of October. Like literally, we've experienced four full months now almost of going nowhere. And that's not something that I think everybody is not necessarily paying all that much attention to. We're hanging right around a little less than 7,000, feels OK, but we haven't gone anywhere in four months now. So that's something that starts to become a bit concerning. The earnings line has continued to go up and to the right. So that provides some underpinning for the market. But the longer that we continue to hang around at these levels, the more potential there is for something to come along and surprise the market negatively and to see us roll over and have a bit of a correction here. So that's something that I'm starting to become aware of. I'm not calling it right now, but I'm telling you, I'm starting to feel like the fact that we've been churning here for four months is now not, I'm thinking it's more negative than positive. So we'll have to see how it goes as we move through the next few months. Clearly, we've got a lot of uncertainty. The tariff stuff this morning just injects a little bit more uncertainty into the market. Are there going to be refunds? Are there not going to be? What are they going to do next? So here we are back to the same stuff we were dealing with last year. And I think that we don't need that. You saw a little bit of a positive knee-jerk reaction in the market this morning to the tariff announcement from the Supreme Court. But we're only talking about an S&P now that's up three tenths of a percent. So I think the market is seeing through this again, too, and understanding that there's going to be an injection of more uncertainty here.

Brian Pietrangelo [00:15:51]

Let's take a pause, folks. On the panel, Steve, you just mentioned it. So for our listeners listening right at this time, we are recording the podcast as the news breaks the wire from the ruling from the Supreme Court on a six to three decision against most of the provisions on the IEPA tariffs. Those are the International Emergency Economic Powers Act tariffs that were implemented by President Trump and his administration back in 2025, known as Liberation Day. So there are some outcomes here from and again, we just got this on the wire. Thanks, Steve, for bringing it up. And we'll go to our panel. George, what's your reaction to this? And then we'll come back to Rajeev and Steve.

George Mateyo [00:16:29]

So, Brian, I think we talked about this. earlier this year, maybe even end of last year, when we started talking about our 2026 outlook. And you're right to call out the IEPA label in the sense that when the administration put forth these tariffs, they use a certain statutory provision that said that basically they, in their opinion, they thought that there was a national or maybe an international emergency that necessitated tariffs. And they use that statute because they could probably do that most efficiently and effectively, right? That was something they didn't have to get They could almost front run Congress, so to speak, and actually put on these tariffs in a very expeditious fashion. So now the Supreme Court has said, No, the administration, you probably went too far. You overstepped your bounds. You probably needed to consult Congress. I've not read all the ruling yet, obviously, but I think that was probably one key takeaway where it says to me that the Supreme Court ruled that the administration maybe on a procedural basis, probably kind of went about this the wrong way. And there's all kinds of interpretation of that, and that's not a judgment call, that's not a political statement, but I think that's just my fast, quick interpretation of it. I think what probably the bigger thing, as Steve mentioned, is that the market reaction will probably be somewhat muted. There'll probably be some sigh of relief, because I think the market was right to be somewhat concerned about tariffs last year, in the sense that when you impose tariffs, it's a tax. And when people are taxed, businesses are taxed, You know, spending usually goes down and the economy weakens, generally speaking. We didn't really see that in the second half of last year, even though there's a lot of discussion on tariffs. But nonetheless, I think many companies kind of grew through that. We still haven't really known, we really don't know, frankly, exactly that we've been paying these tariffs thus far. So there's still a lot of unknowns. But I think the bigger takeaway for our listeners is to recognize that the administration has other ways of actually imposing tariffs. And my suspicion, Brian, is going to be that the administration will come out with some statement maybe later today or maybe over the weekend or early next week, I think.

Steve Hoedt [00:18:29]

Already have, George.

George Mateyo [00:18:30]

Oh, okay, there we go. Well, didn't take that long. Well, you can read it to me, Steve, but I think...

Steve Hoedt [00:18:35]

No, Trump says he has a backup plan according to...

George Mateyo [00:18:38]

Well, there you go. Yeah, I think this is... This has been something that people have been expecting for about at least a month now that the Supreme Court would make the ruling sometime in January. Here we are in kind of mid-February, and now they've come out with the ruling. So not really surprising to see that, I guess. And again, I think the bigger takeaway is that what is this going to mean? I think it's probably going to mean probably a little bit less growth, a little bit more inflation. But again, the real question is who's going to pay these tariffs is the ongoing debate. And meanwhile, I think the bigger question, at least from the the fiscal side, meaning the governments themselves, is what's going to happen with their debt situation. And I think the government would probably prefer us to see these tariffs being imposed so we can actually get our deficit down a little bit. That's starting to happen really, really a little bit. You have to squint to see it, but it's happened just ever so slightly. But again, I think what Rajeev is going to be focused on, I would think anyway, is the bond market, because that'll probably be the real tell for us in terms of we're seeing any type of real fiscal pressures. So again, I don't think this changes the game too much. As Steve talked about from the market perspective, there's a lot of churning underneath the surface. And so again, I kind of came back to what I said earlier, where I think just being uber-diversified right now is going to be what matters most. That means owning bonds, that means owning international securities, that means owning value stocks. I mean, I think for the longtime, growth stocks were really all the rage. Maybe growth gets a bit on this news this morning. Growth stocks might actually do better in the second half of this year if things really start to slow down from the economic perspective. But we also have some stimulus that's coming out. We haven't even talked about that, but we still have this one big, beautiful bill impact that's all going to ripple through probably the first half of this year. So, net-net, I kind of think that, again, it's just going to be kind of one of these things where we end our way through this in the first half. And as long as the overall trajectory stays Positive with respect to earnings and overall economic growth, we'll be okay, but I think it's going to be kind of a choppy environment for some time.

Brian Pietrangelo [00:20:31]

Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And before we close the podcast today, I want to give you a heads up on a national client call that we are having coming up on Wednesday, March 4 at 1pm in the Eastern. We have our head of financial planning, our National Director of Financial Planning, Tom Jarecki, bringing a guest speaker on, Brian Portnoy, where we're going to have a fantastic discussion around achieving true financial well-being and going through the process of how the mental brain thinks about what's going on in the markets and the economy and how you can apply that to your financial plan and to your financial well-being. So again, if you are interested and have not received an invitation, please reach out to your financial advisor or your relationship manager. Again, coming up on March 4 at 1 p.m. Eastern Standard Time, our national call, Navigating Noise, Finding Meaning, a conversation with Brian Portnoy and Tom Jarecki. So thanks to 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 again 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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