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, November 14th, 2025. I'm Brian Pietrangelo and welcome to the podcast.

In case you didn't hear, this week marks the end of the penny for the U.S. currency. The United States Mint struck the final five U.S. pennies back on Wednesday afternoon, which ended the country's 232- year history of making the penny. Earlier this year, President Trump had given the order to stop producing pennies because of the cost is much more than is actually the value of the penny in some vicinity of roughly $56 million. And in case you didn't know, a penny is a combination of both copper and zinc and cost around 3.7 cents to make each penny, which is obviously only worth $0.01. So it will be interesting to see how this plays out. I know that pennies are still in circulation relative to banks and using them for purchases, I just don't know how it will affect the overall digital world that we live in today, and rounding up to the nickel. 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 Brad Thomas, Managing Director of Equity Research within our KeyBanc Capital Markets line of business. 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 economic calendar was extraordinarily light in general, but also on top of that, we did not receive the expected reports we were going to get according to the normal calendar. Examples of those include. The initial unemployment claims report was delayed for the seventh consecutive week due to the government shutdown. CPI inflation, PPI inflation and retail sales reports were also delayed this week. The good news, however, is the government shutdown did end after the longest in history, at 43 days, based on the fact that the party line votes were regularly consistent, however some Democrats did come across the aisle to work with Republicans to get this reopened, and then President Trump signed it. So now we have the work to do to reopen, and it should benefit those that need a little bit of back pay: air traffic controllers and other departments that we rely on within the government.

In addition, this week we heard the announcement from the Atlanta Federal Reserve President, Raphael Bostic, that he intends to retire at the end of February in 2026, which brings an interesting dynamic in terms of turnover at the Fed bank presidents. Plus, we've got the upcoming Jay Powell term ending in May of 2026 for his chair position. We will talk with Rajeev about that, get his perspective. In addition, thoughts from George on the government shutdown and what's happening in the economy. And last, we will have a conversation with George and Brad Thomas, our guest as a managing director from KeyBanc Capital Markets in terms of what's happening in the consumer sector.

So let's start the podcast today, moving to George to get his thoughts on what's happening. And I would be remiss if I didn't say, George, how about a penny for your thoughts?

George Mateyo [03:50:00] So the demise of the penny. Yes, Brian, that's a that's a good point. And, kind of sad to see it go to some extent, but I did recognize or maybe I read somewhere recently that it cost over $0.03 to make a penny. So maybe this is probably a better economic situation than we might make it out to be, in the sense that maybe we save some money in the process of, seeing the penny by the wayside. But but look, I think the bigger picture, of course, in the sense that if authentic $0.03 to make is that inflation is still a concern to many people, and that's evident by some of the Fed speak that we've had this week.

And we'll get really start on that in a second. But that just kind of takes the, you know, maybe a, path into the discussion around the deeper and longer narrative around what's happening in the market this week. And I think it's probably just a situation of great unknowns right now, as we kind of head into a slower time of the year in the sense that there is a lot of unknowns with respect to what the Fed might be thinking.

As you think about their next meeting in December. Of course, there's still a lot of unknowns with respect to the data. You, I think, referenced that a little bit in your comments, too, where we have to acknowledge that there's going to be probably just this void for a while. We might actually get a lot of data at once, but I think we're still trying to that we recognize that all the data we normally have is still being pieced together, so we don't have a really full, a great handle on really where the economy is at the moment. And I think there's also still a bit of, you know, uncertainty just around, you know, trade policy still. Right? I mean, we've talked a little bit about that and it kind of feels like a bit of a game of whack-a-mole that some of our listeners might remember in a sense, that I saw this week, and I was pleased to see you actually go down for coffee and bananas.

You know, two things I consume on a regular basis. But at the same time, tariffs are going up for time past I which, Brian, I know that's in near due to your heart and your family's traditions. So, you know, I still think we've got this ongoing on again, off again situation with respect to tariffs, but just adding greater, confusion as well. And then thirdly, I think we talked a lot about on this call, which has to do with artificial intelligence. And we've kind of seen the transition from kind of growth and I think to growth almost at any, any clip. And you'll see your stock price rewarded. Now what's happened I think is we started to call out in the past few weeks or so that investors are becoming a bit more discerning and probably a bit more selective, in other words, that they're not just chasing things because they're chasing them, but understanding that maybe there is some risk behind this massive amount of spending that's happening. Not to say that we're bearish on I certainly, but I think it does. Maybe some questions get raised around the profitability of all this. Spending will actually be what would come, I guess is the real question. So I think it's fair to say that there are a lot of crosscurrents still a lot of unknown questions, a lot of, uncertainty and fogginess to use one of, Jay Powell terms with respect to where the economy is.

So, Rajeev, you can put all this together. It's not surprising to me to see some confusion and maybe, dissension amongst the Ben, but the level of dissension, I think is really kind of raised a fever pitch this week where I think there's at least now 3 or 4 Fed governors or soon to be Fed governors or presidents of different Fed banks that are going to be on the committee next year that suggest that maybe we're going to see a very divided set when they meet later this, next month. So how are you thinking about what the Fed is thinking about? And maybe what does that mean for markets in your view?

Rajeev Sharma [06:57:00] Well, George, I think the big question remains. And as you said, will the Fed cut rates next month? And, a number of Fed members hit the airwaves, this week, and they didn't really sound very convinced that the Fed is going to cut rates. That led to some of the market expectations out there feeling that maybe a 25 basis point rate cut in December is now down to a coin flip? It's about 5050 odds right now. If we do get some belated data reports, it should help provide the market with clarity on where to place their chips as far as a record goes in December, because it is very rare that the market prices in Fed decisions as a coin flip just one month in advance of a meeting.

Generally, the market has a really good idea of where the Fed's going to be, next month, if you will. And right now it's coming down to a coin flip. A lot of that has to do with the government shutdown. A lot of that has to do with the lack of data. You know, the Fed really needs the data and so does the market. We may get some belated data reports. Will they be enough for the Fed to make a decision by now? There should be clarity and there's not. The bond markets do not have that clarity today. And then you have you know, other Fed members coming out and talking about, you know, we need more data. The other thing that add some alarm bells is the Atlanta Fed president, Raphael Bostic, announcement this week that he's going to retire at the end of his term in February 2026. This type of leadership turnover raises some questions about the Fed's ability to maintain its tradition of independence. So once again, those questions start to come up. How independent is the Fed going to be going forward? The Trump administration has been pushing for a more dovish Fed members. They've been pushing for rate cuts. Now you have Bostic replacement will be announced at some point next year.

That replacement will not be appointed by the white House, but, it'll be appointed by the Atlanta Fed. Fed's board of directors. So that does limit some of the direct presidential influence that may happen on this. But the context of turnover in the Fed, it never settles well with the markets. And I do think that, again, it adds the point where what is the makeup of the Fed going to be? How many dovish Fed members are going to be on there. What does that do for 2026? Outlook and beyond as far as rate cuts go.
And the market was not spared of this. I mean, this market the bond market experienced some excitement this week. We did see yields move higher on the talks of ending the government shutdown. Inherently that puts the risk on trade back on. And we did see investors move away from the safety haven nature of, treasuries and more towards risk assets. We also had a very busy week this week with Treasury auctions. Treasury supply hit the market this week in the form of three year tenure and 30 year treasuries. They totaled about $125 million. So that also put upward pressure on Treasury yields.

Overall, the three year auction did pretty well, but the ten and 30 year option had some mixed investor reception. And again, I think it comes down to the ten year right now, we're seeing the ten year at 4.11% this week. Despite the feeling that that's a big move, it remains pretty much at the midpoint of where we've been this month. This month, we've seen the ten year trade between 4.05 and 4.16%. So if I look at my screens this morning, I see buyers stepping in. I think buyers really get excited when we get above four, ten, four, 15. That's when you start seeing buyers feeling that this is an attractive entry point for the ten year. And when we started the, when the government started to shut down in early October, we did see a rally in bonds.

We did see yields fall for four straight weeks. As soon as the negotiations of reopening the government began, yields started moving higher. The reopening lent, support to consumer confidence and growth. And that also raises the odds that the Fed will pause in December. So there's a lot of moving parts here. I mean, credit spreads when reflected I mean, we saw an investor grade credit spreads this week wider by about two basis points. It's not a big deal considering the amount of new issue that we've seen in the market this week. High yield spreads were wider by seven basis points. Again, no alarm bells. So right now I think it's all going to come down to what kind of belated, data reports we get, what kind of Fed narrative comes out from the Fed before we lead up to this December, if I'm assuming.

George Mateyo [11:11:11] That's a really good backdrop, Rajeev, and I appreciate the context around kind of what's happening inside the Fed or what might happen in the Fed. In the next few months or so. To widen the lens a little bit and maybe I'll put our guest speaker here, Brad, into the conversation. So for those of you who need a quick reminder, Brad is a recurring guest or returning guest, I should say, so welcome back to the podcast. I'm glad to have you. Brad is a, managing director over at our key capital markets equity research team. Does a great job covering, money. The consumer stock, in, in the universe. And I think it's fair to say, Brad, that, you know, as reviewed talked a little bit about the consumer is at an interesting point.

Right now. We're they're dealing with a lot of uncertainty as well, on many levels. And I guess if you kind of think about the companies that you cover, what can you glean from that in terms of how the consumer is behaving? How are they thinking about, you know, spending as we get into the holiday season? And maybe we could talk a bit about this thing called a k-shaped economy, if you don't mind.

Bradley Thomas [12:05:05] Sure, George, and thank you for having me. There's a lot of interesting things happening right now for the consumer, and I would venture to say that there's probably more crosscurrents right now than we've seen in many, many years. But what we keep going back to as we think about how investors should be positioning for 2026, is that you've got fingers crossed, monetary stimulus and fiscal stimulus at your back.

That should support continued consumer spending. What we're hearing from our companies is, I give you a couple of bright spots here, durable goods. Home related spending for retailers like Home Depot and Lowe's, Wayfair, Williams-Sonoma. These are companies that were very challenged coming out of the pandemic. And we're finally seeing some growth again for these companies in in these categories.

And so that, I think is a bright spot. Larger retailers like Walmart, Amazon that we cover continue to drive very healthy sales growth. The challenge tends to be more in the middle, and that if you're not providing value, you're seeing some pressure. We're seeing that at target right now. Steers clear winners and losers. But overall we think the consumer is holding up still.

Well right now.

George Mateyo [13:33:21] And so I get the sense, though that there's probably some bifurcation though. And I kind of reference this a little bit with this notion called the k-shaped economy, which we've done. We talked a little bit about that bread, but I don't know if our listeners really maybe they just need a quick refresh. But, you know, you had think consumers at the high end of the wage spectrum, right.

And certainly they benefited from higher stock prices. Right. This is wealth effect I think is a real phenomenon in the sense that as your point K grows, you probably hold it better off if your home grows at least, you know, according to Zillow, you know, you feel better off. And, you know, people that have homes that actually have retirement accounts are probably some pretty good.

On the other hand, consumers that really maybe aren't as fortunate, maybe they rent for example, maybe they don't have quite the retirement savings and the nest eggs and so forth maybe feel a bit worse. Do you see that in actually the companies that you cover? Are you seeing maybe a bifurcated consumer at all.

Bradley Thomas [14:25:00] That's right. And it's a really important factor in the math behind
That's so important is that the top 10%, wealthiest Americans account for 50% of spending in the U.S and so while at an individual level, mathematically, it wouldn't seem to make sense in dollars, it does. And so that's where the stock market staying high and being today near all time highs is still a really powerful factor for the US consumer.

And so we are seeing, names that cater to a more affluent consumer doing better. We're actually seeing even value oriented retailers like Walmart, Costco talk about, getting higher income individuals coming in and driving their sales growth, at the low end. Interestingly, we're seeing the dollar stores do very well, and they say they're seeing some trade down from middle income individuals. And so I think that exhibits that k-shaped economy. You know, what we're watching going forward here would be obviously can the stock market maintain strength and that help keep the upper income individuals spending? And then at the lower end, can we get some benefits from knock on wood inflation moderating as we get past the tariff increases that we've had of late.

And, you know, could we perhaps see some of the cuts that the Fed is doing to trickle through to the shorter end of the curve and help credit card bills for a lower income individual?

George Mateyo [00:16:09] What about Sam? What within their wallet or within their spending, are they are you seeing consumers spend more on? I've heard things, for example, that consumers are spending more on experiences and things. And I know that doesn't really kind of exempt anybody from the everyday things that everybody needs shampoo and food and things like that, that require them to go to one of those stores you mentioned.

But are you seeing any shift in the way that they spend right now? Bread and spending, especially if you get into the holiday season, right. We're just a few weeks away from the holiday shopping season.

Bradley Thomas [00:16:38] George. I think we're finally at the end of the revenge spending that we were seeing coming out of the pandemic. You know, my restaurant analyst colleague Eric Gonzalez would probably be telling us right now about the challenges that the restaurants are seeing with how high menu prices have gotten.

And, and so this follows a number of years that people were obviously going out and really enjoying being back at restaurants after the pandemic. On the flip side, as I alluded to earlier on our home related spending side, we're finally seeing people, back spending on homes again after many years of not feeling like they needed to because they spent on so many accessories during the pandemic. So I think some of that is kind of wrapping up and and we think we're headed to a bit more normalized trends in all these categories going forward here

George Mateyo [17:34:00] in red. So she talked a little bit about the inflation effort. As it relates to restaurants and so forth. Are you are you seeing much in the way of impacting actually the companies themselves? So you talk about some of the major retailers, how are they managing through the uncertainty around tariffs?

Bradley Thomas [00:17:48] Yeah, it's a great question George. I'm glad you brought it up because as I mentioned earlier, this is a time where there's many crosscurrents. And one of the key ones that we're watching for this holiday season will be how much does the consumer push back or have to cut back on purchases because of some of the tariff increases?

There are categories like toys, where a lot of it comes from China. You just can't switch to other places on the toys. You know, we think holiday spending will still be strong in dollar terms, but there may be some houses that have one last item under the tree because of the tariffs. And, looking forward, you know, we think the consumer will be able to navigate it.

It is in more select categories. And we have seen, the Trump administration just, pull back tariffs by 10% from the fentanyl related tariffs. And so that should be a good guy as we think about the tariff and pricing dynamic as we move into 2026. But again, the price increases is something we're watching closely. And every management team would tell you they're watching really closely for this holiday season.

Brian Pietrangelo [00:19:02] Brad, George - George connected that with inflation and consumer spending habits quite well as your response. But one of the things that we've seen recently from the New York Fed was an increase in 90 days, plus delinquencies in credit cards, auto loans and student loans, loans. How do you think that plays in?

Bradley Thomas [00:19:20] So as we think about credit that ties to the k-shaped economy, that lower income individual, our math suggests that they've been having to tap credit cards at an increasing rate to order in order to keep spending. That's something that has had us worried about, in terms of the health of the consumer, in terms of the health of their ability to spend.

And this is where we believe it was warranted for the Fed to be cutting rates, because we think that that will tire that lower income individual and the hopefully lower credit card bills on the horizon from a lower interest rate, you know, could be a good guy. So, the coincident indicators not great, but the leading indicators, hopefully positive here.

George Mateyo [00:20:10] Brad, any final thoughts with respect to our, our our investors and our clients as we think about next year? You know, again, we're in the process right now of putting together our thoughts on the year ahead as well. And you've got to news you you've kind of mentioned that a few times, but anything we should note as we close out the call here.

Bradley Thomas [00:20:27] Yeah, I, I think I alluded to it earlier and you all have talked about it for, we think the tailwind for the US economy still should be a positive one. Normally you get monetary stimulus and fiscal stimulus, and that's a good thing for the consumer and the economy overall in our coverage, we think there are some amazing retailers out there like Walmart, like Amazon, very well positioned to grow and take, share, on a future podcast.

I'd love to have Justin Patterson or Jackson or some of my colleagues, however I and software on to talk about that. But from a retail perspective, we think Amazon is in a great space to continue to grow. So there's some wonderful investment opportunities still out there. You know, we think for investors and, again, a number of reasons that hopefully consumer spending stays strong into 2026.

George Mateyo [00:21:24] Super. Thanks so much Brad. Great to see you again.

Bradley Thomas [00:21:26] Great. Thank you.

Brian Pietrangelo [00:21:28] Well, thanks for the conversation today George. Rajeev and Brad, 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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