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, April 10th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. If you are a golf fan, you're certainly excited this week as we begin the Masters Tournament in Augusta, Georgia, as its famed history is quite exciting to watch on a regular basis every year. All those competing are in search for the coveted Green Jacket, as it is known from the Masters Tournament. In addition, we always have the comforting voice of the famous Jim Nance and all of his sayings for the tournament, which is such a pleasure to listen to, not only watching, but listening on TV for what a great event and its fabulous, fabulous history. So enjoy it if you can, such an exciting time of year. With me today, I would like to introduce our panel of investing experts. Some might say they wear green jackets of their own. Here to provide their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Tim McDonough, Director of Fixed Income Portfolio Management. 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 want to say thanks to our avid listeners who are listening to us each week. You would know that last week we took Friday off for the holiday. So we're going to have a little bit more data on the economic front in order to report to you because we're picking up about a week and a half of economic data. So we're going to have three big categories of economic release data, one on inflation, one on employment and unemployment, and one on growth. In addition, we'll talk about 3 topics outside of those, including the update on Iran and what's going on there. We see some positive news and momentum with President Trump and the leaders in Iran for some type of ceasefire. So we'll see how that goes forward and comes to some type of resolution, we all hope. In addition, we had the Fed released its minutes from its FOMC meeting back on March 18th that seemed to be a little bit hawkish with the persistence of inflation reading through. And then finally, We received the third and final update for the fourth quarter of 2025 gross domestic product, which showed that the quarter came in at a 0.5% clip, which was slightly lower than the second estimate at 0.7%, which was half that of the first estimate at 1.4%. So clearly seeing a little bit slowing in the growth in the fourth quarter, we'll turn the dial to see where we are in the first quarter coming up here very soon. So on the first batch of information regarding employment, we go back to last Friday's release, which included the new non-farm payrolls for the month of March 2026, where new non-farm payrolls came in at 178,000, which was pretty strong, a little bit stronger than expected. Now this makes up a little bit for the decline in February, which was roughly minus 130,000 new jobs. So again, as the months get a little choppy here back and forth, we'll lead to see if this is a little bit of a slowing. were just choppiness in the labor market. Also in that same report, the overall unemployment rate went down to 4.3% for the month and remains fairly stable. Moving to this week, we got the weekly unemployment claims report that came in at 202,000 for the week ending March 28th, and that number continues to remain very stable. So we continue to be in this low hire, low fire environment, which again is uncertain for business owners to hire people, but also wanting to retain their current employee staff. The second batch of information is related to inflation and comes in two different forms. The first one came out yesterday known as PCE inflation or personal consumption expenditures measure of inflation, which is the preferred measure by the Federal Reserve. And it's still a month behind, folks. So that is only for the month of February 2026. Overall, PCE inflation came in at an annualized rate of 2.8%, and core, excluding food and energy, came in at 3%, again still elevated and above the Fed's preferred target of 2%. In addition, because it's behind by one month, please note that this information through February does not contain any of the inflationary information that might be related to oil from the Iran war. Also, just this morning, we got the CPI, or Consumer Price Index, measure of inflation, which does include through March. And so we'll talk about that with our panel and what those two inflation reads mean with regard to Federal Reserve policy. And the third item to discuss is more about the market and the positive momentum we saw earlier in the week with about a 2.5 to 3% gain in one day after the ceasefire was announced. So the market responded pretty positively in that regard. We're here through the end of the week. We'll get that recap from Steve. So with that, George, we'll start with you with your reaction and update on what's happening in Iran, as well as your reaction to the economic data. And as we use the Gulf analogy, George, there are a lot of hazards out there in terms of uncertainty, whether they're sand traps or water hazards or just a lot of rough. We seem to have a lot relative to the economy as well. whether it's inflation or Iran or oil or all the above. So when we try to hit that ball down the middle of the fairway, George, what are your thoughts on the overall economic environment?

George Mateyo [00:05:51]

Well, when I tee it off, Brian, it's never down the middle, but I appreciate the metaphor nonetheless. I think, you know, there's probably a lot of things we could talk about this morning, frankly, a lot of cross-currents economic-wise and geopolitical-wise for sure. You know, kind of starting though. From just what we see from the economy, you mentioned the fact that inflation has popped up a little bit, and that's probably not too surprising given what we've seen, but the numbers are pretty big. You can't ignore them. You see gas prices, for example, on a year-over-year basis up 20%. Month-to-month, they're 20%. So if you annualize that, that actually kind of extrapolates out to something close to 100%. But again, we're not going to see that hopefully sustained, we hope. That's probably the best thing we can kind of point to, so they might start to come down a little bit. And there's some other things that suggested maybe if you kind of strip out the noisy energy sector, it reminded me actually when we started talking about core inflation versus headline inflation. And of course, core inflation strips out energy prices and food prices because, well, they matter a lot, but I guess they're volatiles we've seen this morning. But I think it's fair to say that that was actually a policy that was instituted, I think, back in the '70s, coincidentally enough. Anyway, all that being said, I think we've started to see inflation at the core level. So again, if you strip out some of the noisiness with respect to energy prices, you've seen inflation somewhat moderate. I think there were some interesting things beneath the hood, though, that bear some monitoring. Housing inflation, for example, is still somewhat sticky, and that's kind of been a persistent issue for some time now. Not sure exactly how to read through that, and I think it might actually kind of bounce around a little bit here in the next few months or two. And then similarly with another thing that was kind of interesting to me, if you look at some of the inflation with respect to computers and technology actually kind of moved up a little bit. And again, maybe that's just AI that's kind of starting to kind of ripple through some of the broader economic readings. So again, inflation kind of a mixed bag. I think it's starting to kind of stabilize a little bit. But again, we've got the shock right now from the oil sector that's going to be with us probably for at least another month or two, if not more. The other numbers this week that were notable has to do with the overall labor market. Again, that's one thing we're watching very closely to understand if the Fed would be more concerned about a slowdown in jobs and so forth. The unemployment claims that we watched pretty closely did tick up a little bit. But again, I think there might be some noisiness with that too. So all of that, I think the economy is kind of in okay shape right now. It's kind of processing as best as it can some of these shocks right now that we're seeing. And again, probably these shocks that we're seeing right now will probably be with us a bit longer. So on that side, again, the real headline, of course, this week had to do with a ceasefire or the potential of a ceasefire. Again, we'll maybe know a lot more after this weekend once negotiations really take hold. Hopefully, they kind of play out. Again, nobody really knows. There's frankly a lot of unknowns that are still in front of us, and we just don't know exactly what might happen next. So it's going to be probably more volatility than anything else in the near term as we understand kind of what happens. in the next 30 to 60 days with respect to ceasefires and some of those things. I want to point out, ceasefires themselves can go on for quite some time. We had, for example, a negotiation that lasted over two and a half years, the last time the United States was involved in some type of negotiations with the Middle East. I think it's fair to say that we started to think about if this war is coming to some next stage, maybe it doesn't include the end, but maybe if it is getting closer to some resolution, we should probably start thinking about what are some of the longer-lasting impacts. And in my view, I think there's a couple of things to point to, one of which has to do with the fact that maybe interest rates might remain a little bit higher for longer. And also along with that, we might see maybe the dollar be a little weaker. The dollar actually was pretty strong in the last month or so, rising about 0.5% or so, which is a pretty decent move by currency standards. But I do think that maybe at some point that might weaken a little bit. Conversely, though, rates might be somewhat higher for longer in the sense that maybe there's maybe concerns about just the sheer amount of spending that's actually been associated with war, the ongoing indebtedness of this country, and other things that cause maybe central banks to be somewhat on hold. So again, those are some things that I'm thinking about at one level. Steve, if I think about your world, think about equities, for example, we've seen energy prices, of course, help energy stocks. That's actually been beneficial. I don't know if you've got a view on that. And also, maybe your thoughts on maybe kind of where oil is headed in the near term based on some of these easing of tensions in the Middle East. Any thoughts, Steve?

Steve Hoedt [00:10:15]

Yeah, George, to your point about the long-term impacts of this, I think the one thing that has become very clear to both myself and the markets is that the importance of the Strait of Hormuz will never be higher than the day prior to the onset of this conflict. in terms of the flow of oil, because what's going to happen is, and you're already seeing the discussions about it, infrastructure projects are going to happen all across the Middle East to give people options for distribution of oil in the future. So the Kuwaitis are talking about putting a pipeline over to the Red Sea through Saudi Arabia. The Saudis are talking about doubling the east-west capacity on the pipeline that they already have to Yanbu. The Omanis and the United Arab Emirates are talking about another pipeline to go across over to the Arabian Sea. So, you know, and the Iraqis too, they have a pipeline, but it kind of fell into disrepair and they're talking about refurbishing that goes to the port of Sahan in Turkey. So, you know, basically I just laid out four or five major infrastructure projects that have the potential to divert energy away from the Strait of Hormuz to other to other avenues that are not under the potential control or influence of the Iranians or anybody else who wants to charge a toll to go to go across the strait. So I don't think this stuff is going to happen instantaneously, but I do think that it's going to happen because you simply can't have And in my view, and I think across the Middle East to have have one country or a couple of countries having the ability to basically hold the global economy hostage because of the the fact that 20% of the the flow of energy flows through a six mile stretch of the Strait of Hormuz. So that to me is going to be the biggest impact from this, that there's going to be Change the global energy markets going forward Three to five years from now. It's going to look very different and and while the strait will remain important It's not going to ever be as important as it was before and that probably is going to be a big shock to people who think that you know, they I think that the from a geopolitical perspective that the idea that the the strait could be closed was an untested theory and Now it is a completely tested theory And so I think that you're going to see adjustments based on that.

Brian Pietrangelo [00:13:03]

So Steve, with that, what are your thoughts as we get into the start of Q1 earnings for 2026? Any preliminary reads?

Steve Hoedt [00:13:11]

So earnings have been great so far, but at the end of the day, the market hasn't cared. And the reason for that has been this move higher in real interest rates driven by the inflation situation. And we need to see real rates move lower for us to be able to see PE multiples expand again. Essentially, what happened is while earnings numbers have gone close to $340 for the S&P 500, which is up sharply from where they were at the beginning of the year, up closing in on high single digits already this year, making it very likely that we're able to eclipse what were very aggressive numbers coming into the year, which were like 14%. We could end up doing 16% this year, which would be amazing. I think that what you've seen is you've seen the market multiple collapse from 22 down to 18 and a half, 19. And there's been some stickiness there in terms of not wanting to bounce back higher yet. And it has everything to do with where real rates are. Because if you look, there's a historical, a very high historical correlation between real rates and where the B multiple is willing to go. So I think that we'll have a good earnings season, but guidance is kind of going to be mixed probably because of the economic impacts of this situation in the Middle East and changes to consumer behavior because of having to shift around dollars. But honestly, I think you're going to see largely the street give companies a get out of jail free card for this quarter because of that. On the guidance, I don't think it's really going to matter all that much. This is a macro driven market right now, quite honestly.

Brian Pietrangelo [00:15:10]

Yes, Steve, makes sense. Thanks for those comments. And speaking of real rates, it's a good segue to bring a special guest into the podcast, Tim McDonough, our Director of Fixed Income Portfolio Management on the tax exempt side, which is also known as municipal bonds. So Tim, what's your take on what's happening in the overall environment and some of the underlying themes within the municipal bond market?

Tim McDonough [00:15:31]

Thanks, Brian. Yeah, it's been an up and down year for the muni market. If we were filling out a golf scorecard, it would be birdie, birdie, triple bogey. After a strong January and February, which saw the Bloomberg Muni Bond Index up 2.2% for the year, the index dropped 2.3% in March. Yields soared higher across the Muni curve, but especially the 7- to 10-year portion, which saw yields up 60 basis points in just one month. A reason for the underperformance of Munis relative to treasuries for March lays with the Muni-to-Treasury ratios. After a strong January, muni to treasury ratios came below 60% in the first 10 years of the yield curve. So, once we started to see a sell-off in treasuries throughout the month of March, munis surpassed them. And a 10-year muni ratio went from 68% at the beginning of March to 78% at the end of the month. So, where we are right now is that ratios have gone up to a value that we would consider fair. They're not rich, not cheap, but kind of right in the middle of the fairway. And we already have seen a bit of a rally just through the first 10 days of April. Muni yields are down approximately 20 basis points in that 7 to 10 year portion of the curve. There are some structural headwinds that the market does face, though. We are fond of the phrase, beware of the ides of March in Muni-land. This is a period of the year where we see reduced number, total value of bonds, maturing and coupon payments being made. So there's a supply demand imbalance as We have fewer bonds maturing and making coupon payments while new issuance continues to surpass that. So we've got less demand, more supply. We would expect this to change right around the June to July timeframe, which is when we see a larger supply of coupon payments and bonds mature. There has been steady demand with municipal bond inflows into funds. Year-to-date, we've had $28.3 billion come into mutual funds and ETFs. And while that is the second highest year-to-date number on record, we still have to travail these winds for the next few months until we start to see that increased number of bonds and coupon payments coming through. I'll pass it back to you.

Brian Pietrangelo [00:18:40]

Awesome. So to give a finer point for some of our listeners who are not as experts as you are in the muni bond market, when we talk the treasury muni ratio, we're talking about the opportunity for investors who have high taxable income to make the decision between buying a taxable bond like a treasury versus a tax exempt bond like a muni. Just put a finer point on that with the ratio, Tim, to explain to our audience what that means.

Tim McDonough [00:19:06]

Yes, so, it's pretty easy. If a muni to treasury ratio is above 60%, it means the taxable equivalent yield of your tax-exempt muni is higher than a treasury. Whereas once we see those ratios get below 60%, your taxable equivalent yield for your muni is actually below a treasury, in which case you're just better off buying a fully taxable bond, such as a treasury. So again, where we are right now, we would say that munis are fairly valued relative to treasuries. They're not prohibitively rich, but they're also not prohibitively cheap. They're actually not advantageously cheap as well.

Brian Pietrangelo [00:19:52]

Great. Thank you, Tim. And any final remarks, George, as we close the podcast, just for our listeners.

George Mateyo [00:20:00]

Enjoy the masters. Spring is upon us, hopefully, and we can just probably benefit from a little bit of warmer weather, frankly. So I'm looking forward to getting outside and probably just kind of walking around a little bit. So that's my big advice. Aside from that, there's going to be a lot of noise this weekend, potentially, too, geopolitically. And as best you can, try to tune that out. I think it's going to be a lot of noise, but I think we are making progress, hopefully. As Steve pointed out, I think it is kind of one of these moments where maybe there's two steps forward, one step back that we have to navigate. There's still a lot of uncertainty. So again, we would really urge caution, probably be over-diversified, and that's always our kind of tagline. But I really think diversification is going to matter most going forward in this uncertain environment.

Brian Pietrangelo [00:20:45]

Well, thanks for the conversation today, George, Steve, and Tim. 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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