Brian Pietrangelo [00:00:01] 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, October 17th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. We've got a lot of news going on this week, so I'd like to introduce our panel of investing experts right away, 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 market and economic news, we have more news than the economic releases will provide because the government shutdown has continued into day 17 with no resolution in sight. So what that means for the government reports is that the Consumer Price Index was delayed, the Producer Price Index delayed, the unemployment claims report delayed, and retail sales data were also delayed. So, these are the normal cycle of economic updates we would provide to you this week, and they are delayed due to the government shutdown. We do have a couple items to share with you, however, that we looked at.
The NFIB, the National Federation of Independent Business' Small Business Optimism Index, for the month of September, and it declined two points to 98.8. This was the first decline in three months, though it remains above the survey's 52-year average. However, the uncertainty index as part of that report did rise seven points up to the number of a 100, which is the fourth highest reading in over 51 years. So calibrating that report in addition to some reports that KeyBank also looks at with regard to small business owners, the uncertain factor continues to grow with regard to employment, with regard taxes, with regard tariffs, with regards to a whole bunch of other things. So interestingly enough, we continue to monitor that as a real thing.
In addition, this week on Wednesday, the Federal Reserve came out with their Beige Book report, which, as most of you know, because we report on it almost every single time the Fed is meeting, it comes out two weeks in advance of the upcoming Federal Reserve meeting on October 28th and 29th in two weeks. The report covers the 12 bank districts in the nation, and the overall economic activity report changed little on balance since the previous report, with three districts of the 12 reporting slight to modest growth in activity, five of the 12 reporting no change at all, and four of the twelve noting slight softening. On the employment front, overall employment levels were largely stable in the recent weeks, and demand for labor was generally muted across the districts and the sectors.
In other news this week, we have the overall tariff spat a little bit with China and the United States this week We had a Middle East peace agreement this week as well Q3 earnings season is in full swing and we had a couple concerned comments about some Bankruptcies and the potential implications to the overall market in this regard. We'll touch on that with our panel today. So let's tee it up for George for our first question. Just get your overall reaction George on a lot of tremendous news this week that may have implications for the markets as well as the stock and bond markets in the economy which will touch on with Steve and Rajeev. But first, get your take. What do you think George?

George Mateyo [00:03:46] So Brian, I think in the absence of real good data, we're probably, as you mentioned, kind of wandering in the wilderness a little bit. You know, we're here day 17 or so, and to some extent it's kind of interesting to see that the shutdown talks are really falling off the front page. Maybe that just suggests this is gonna be a lot longer. Maybe it suggests that we're gonna be kind of grappling with this uncertain environment for quite some time. You know it seems like the market has just kind of moved on and maybe kind of overlooking it. The market's really kind of discounting that the Fed will be lowering interest when they get together in a few weeks. And that's all but a certainty right now. Same time, the market is processing data around earnings. And I guess roughly maybe 10 or 12 percent of the S&P 500 companies have reported earnings thus far. So it's still kind of early, but the early indications are pretty favorable overall. So the market's kind of taking that in stride.
I guess if we wanted to parse through some data, I think you could say that to the health of the consumer. So in my mind, one of the key things to watch and I think by all accounts, it's good. I wouldn't say it's really great, but it's good. You know, there's some anecdotes and say that spending data was a little weaker. I think we're trying to glean through some of the recent credit card spending and so forth. You can kind of parse out some information there. And it looks like there is some slowdown there, but not really a fall off. And maybe that's just temporary. Maybe that's seasonal. It's too hard to say. Um, but, you know, I was just in New York this past week and by all accounts, just the, the report from the street, which say to me that things are pretty healthy, pretty healthy hotels for full restaurants were packed and by all accounts, it seemed like activity was pretty brisk. Uh, so take that for what it's worth. But I think the consumer is going to be the key thing to watch going forward.
We have seen, again, some softening in the labor market, but not really a collapsing. Of course, the data that we all depend upon has actually been withheld a little bit, or it's just been delayed being released, I should probably say. But again, I think that's gonna be the key thing to watch going forward. So overall, I'd say things are probably in a pretty good place right now, but things are slowing. Valuations, meanwhile, are still pretty elevated, so we have some risk to navigate there just because of the fact that, frankly, because stock prices are so high and risk is pretty low. If you look at credit spreads and so forth.
But I think the key thing that also kind of happened this week of course happened within the regional bank sector. We had a big comment from a major CEO in the banking world that talked about cockroaches emerging where he saw some credit risk emerging. And there of course were two major credits that we’ll talk a little about. Our bank has not had any exposure to those. But I think to some extent, this is an institution, this is a CEO that has warned about things in the past that haven't really come to fruition.
But again, I think it's fair to say that, yes, credit has been pretty lenient in the past several years. There's been a lot of credit maybe underwrited that might be a little bit lax in some parts of the overall economy. So we have to be mindful of this, but I don't think this is systemic as yet. I don't think this a major economic event to the extent that we saw other credit events, other cycles take hold, but we can't ignore it either. So I think that's fair say that things are starting to kind of slow down a little bit. And once things slow down, we start to see some things like this emerge from time to time. But at the moment right now, I don't think this is a systemic issue or to cause major pressure in the economy and really kind of take the bull market down in a significant way. That's how I think about it, Steve. If you think about what's happening in the banking sector or maybe earnings overall, anything that you can glean through as you've kind of seen the earnings season play up thus far.

Stephen Hoedt [00:07:09] Yeah, George, you know, when you think about the, the banking and credit worries, I mean, I keep coming back to the whole idea that bull markets climb a wall of worry, right? There's always something for the market to worry about.
When you look at the, the situation in the credit markets, I always watch the high yield and investment grade CDX spread. Those are, um, very sensitive to movement in credit weakening, because they're credit default swaps. And we've seen a little bit of widening there, but not much at all, to be honest with you. Nothing like even the spike that we saw on the tariff-related news earlier this year. I see right now investment grade spread sitting at 54 basis points. We were as high as 80 when we were back in the teeth of the tariff situation earlier this year. So credit markets actually seem to be taking this in stride. Yeah, and if you look at the regional banks, they always kind of tend to amplify the concerns that happen at larger banks. And to your point, larger banks, there are some advantages there, no doubt, but this particular CEO who you're talking about loves to talk his book. So I think when you get into a situation where there's an opportunity to kind of, you know, try to drive people via fear to a larger place. You know, that's where we go.
So, you know, when I look at the market, you know, it's kind of been a week where we saw volatility pop a little bit earlier this week. We're at 23 on the Cboe volatility index. The long-term average is 19 and a half. We really don't think that the market though, you know, if you look historically, two standard deviations is up around 35. We're nowhere close to being in some kind of a volatility sell-off here. So it just feels to us like we're in mid-October, what's interesting to me is we're ending the seasonally weak period materially higher than where we were when we began the seasonally weak period. Keep in mind, we talked on these calls about how the seasonally weak period runs basically from, let's say, the second week of August through the second week of October, and right about now is the seasonal trough for the year. And we're materially higher over that window. And as I've said on these calls before, when the market doesn't behave as it's supposed to during a seasonal period, pay attention, because it tells you something's going on. And our belief here is that when wall of worry provides us with a really nice backdrop to focus on the strong earnings numbers that are likely going to continue to come through as we get through Q3 reporting season which ramps in earnest over the next couple weeks. And you're looking at a bullish backdrop for the market into year end.

George Mateyo [00:10:33] So, sticking with the credit theme, Rajeev, I guess, would you summarize it the same way or how are you thinking about what's happening in the credit space in the past?

Rajeev Sharma [00:10:41] Well, you know, George, the talk about loan frauds tied to Zions and Western Alliance Bancorp, they, I do believe that they did rattle some bond investor nerves, but it has not been a systemic event for bond investors. And actually credit markets agree. If you look at it, as Steve pointed out, investment grade and high yield CDS credit default swaps, they're, they are trading near levels that we saw back in June, but they're far from any crisis territory that we could be in right now. Any widening from record types, if you look at a chart and you just look at CDS charts or you look at spread charts, it might look dramatic, but in context they're not showing any contagion risk. If anything, they're reminding us that the market has been complacent. And so any kind of headline risk, it does show a little bit of widening and you do see that. So there are credit jitters in the market, but it's more like a stress test, not a systemic shock.
And the bond market, you know, this week showed some mixed performance. We did see treasuries and investment-grade corporate bonds rally, but high-yield bond spreads did move wider. In fact, high- yield spreads reached their widest levels since June. And this showed that the market's looking at this with a lens of some caution. You do have President Trump's calls for renewed tariffs. Investors gravitated towards safety haven assets like U.S. Treasuries. This moved yields lower and prices for longer duration bonds. We also saw increased demand for investment grade corporate bonds. New issue supply was muted this week. And I think that again, as to the supply demand technicals that we've seen in that market. So investors really want to get corporate bonds and they're willing to pay out for them. Even municipal bonds rallied as investors moved towards this flight to quality.
Now the ongoing government shutdown continues to support a rate cut later this month. Even as the market anticipates a CPI data release at some point next week. But I would add that we did get some Fed speak. In fact, we did hear from Fed Chair Powell. He emphasized balance sheet transparency. He also highlighted cautious optimism on growth. And then he also talked about a steady path for interest rates. So the biggest takeaway that I had from Powell's comments this week were that, you know, they want to get rid of quantitative tightening. They're going to stop the balance sheet runoff in the next coming months. But he also reaffirmed that the Fed is looking at two rate cuts for 2025. That's in line with what the Fed said at the last FOMC meeting. It's also in line with what the market expects from the Fed right now, two more rate cuts this year. So it's all good.
The market realizes that it's going to be a different Fed chair next year. It's likely going to a more dovish Fed chair. The short list that we have for the candidates. All of them seem to have an inclination towards more rate cuts or at least a prolonged rate cutting cycle. There's about five people that are on the shortlist right now. And all of them seemed to have that type of, you know, sentiment that we should have rate cuts. The final decision will be made by President Trump in early 2026. So I do think that a lot of things can move between now and then, but I do that right now you have a Fed that's in a rate cutting cycle and that's very supportive for the bond market.

Brian Pietrangelo [00:14:03] Before we close, one last question for you and then one final question for George. Steve, oil seems to be at a low here around $57 a barrel. Any read into that for implications into the economy?

Stephen Hoedt [00:14:15] You know, I think it comes down to the overall global economy being a little bit slower than what maybe people expected at the beginning of the year. So China has been very key to seeing where oil prices are going and their demand seems to be okay, but I think that the European economy and some of the rest of the economies in the world seem to be a little bit weaker. So, there's not maybe quite as much demand at the margin and that has given us the ability to see oil prices move lower. I know that it's certainly been a nice thing to see at the gas pumps here in Southeast Michigan over the last few weeks to see it drop below three bucks a gallon. I'm sure other places have seen similar moves. And to George's point earlier, any benefit that we see there accrues directly to the consumer, and it helps especially at the lower end. So, you know, that's something that as we head into the back end of the year, we'll have to see if it continues to play out.

Brian Pietrangelo [00:15:22] Thanks Steve. And finally for you George, in a week like this where we have tons of information and some jitters in the market, what are some good reminders that we have overall for investors?

George Mateyo [00:15:31] So, Brian, I think in terms of reminders to keep in line between all the volatility and the confusion and the uncertainty and the government shutdown and so forth, I think from our perspective, it's really important to take a long-term perspective. And thankfully, I think most people understand that, but I think sometimes we miss that in the short-term. But typically, if you can think more long- term, you tend to be better off. And a lot of the stuff that we're talking about on these calls ends up being noise. So I think we pay attention to some of the fundamental drivers, the fundamental underpinnings. We've talked about earnings. We talked about valuations. We've talked about other things that are really supportive of the overall backdrop. And we put those things together. Our view is really being balanced towards risk. And so you have a strategic allocation target usually when you set your investment policy. And I think in times like this, it's really to kind of use that as your north star to focus on that and really maintain that through thick and thin irrespective of what happens in the short term. So for me, it's like sticking to your principles, first principles first, and being diversified and being exposed to markets and at least stay in the market despite short-term fluctuations.

Brian Pietrangelo [00:16:35] Well, thanks for our conversation today, George, 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.

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