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, June 6, 2025. I'm Brian Pietrangelo and welcome to the podcast.

In case you didn't remember, today is a very important anniversary going back all the way to the morning of June 6th, 1944, known as D-Day, when American troops and their Allied forces landed on the beaches of Normandy, France, in an invasion in order to help combat World War II in the overall Allies versus Axis. And as we know now, this is one of the most important landmarks in terms of ending World War II. And again, we thank all of our military veterans back then and now for their service to protect our country.

And on a much lighter note, today is also known as National Donut Day. I had my favorite this morning in celebration of Donut Day, which was a chocolate frosted donut. So I hope you have a favorite too and you get a chance to eat one this morning or later on today.

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, Steve Hoedt, Head of Equities, 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. In that, we address 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, we've got four economic updates for you. First, we'll talk about the Fed's beige book report, and then second, we will talk about the three updates regarding the employment market and specifically dive into some of those details.

So first up, the Beige Book Report came out on Wednesday, which comes out in advance of the upcoming Federal Open Market Committee meeting on June 18th, and it comes out roughly two weeks in advance, eight times a year. The report covers the Fed's 12 districts across America and gives an update on economic activity in each of the 12 districts. As such, the report showed that out of the twelve districts, half or six of the districts reported slight to moderate declines in activity, three districts reported no change, and three districts reported slight growth. And not surprisingly, all of the districts reported elevated levels of economic and policy uncertainty which has led to hesitancy and a cautious approach to business and household

Turning to our three updates for the employment market, we begin earlier in the week with the job openings report from the Bureau of Labor Statistics, and for the month of April it came in at 7.4 million job openings, which was up slightly from the 7.2 million job openings in March. Also in that report, the number of quits didn't change that much, and the number layoffs and discharges didn't much either, so at least some stability there relative to job openings report.

Second, just yesterday, on Thursday, the initial weekly unemployment claims report came out showing an indicator of 247,000 new claims for the week ending May 31st. Now, this is a little bit more important these days because it's the second consecutive week of increases and the increase of over 8,000 where we've seen some smaller increases and decreases bounce around a bit for the last couple weeks. So again, we're looking at this number to see if it is an indicator that continues to rise week over week or we'll see some pullback as an indicator to the relative strength of the economy in terms of the labor market. And again, one of those key numbers that we watch there is whether this number gets above 300,000 as an indicator of whether we may or may not be headed for a recession on this particular data point.

And finally, just this morning on Friday at 8.30, we came out and saw the employment situation report, again from the Bureau of Labor Statistics, which gives us two key indicators. The first is the new non-farm payroll report, which came in at 139,000 for the month of May, which was actually a decent number and slightly bigger and better than expectations in terms of the overall new nonfarm payrolls added. However, if we look back to the revisions for the prior two months for both March and April combined, it was a minus 95,000 in revisions to those two job numbers. So net-net decent, but we've still got to take into consideration that that was a hit to the overall numbers. Also part of that report, the unemployment rate overall stayed low at 4.2 percent. So as we often do as we turn to our panel for the open discussion on what the market and the economy had for us this particular week, we will start with George to get his take on the economy and much much more. George?

George Mateyo [00:05:15] Well, Brian, I think the biggest economic news this week, of course, came this morning, Friday the 6th of June. And as you mentioned, the employment report was a pretty decent report. I think there were some points of softness to it. And overall, the labor market, I think, is softening, but not falling apart, which is certainly welcome news and probably one reason why things like risk assets are doing fairly well at the open here on Friday. I think if we kind of glean through some of the numbers and parts of the details, there's a little bit of kind of good news, bad news, in the sense the good news was the number was a bit better than expected for last month, but then the prior months were revised pretty significantly lower, and we've continued to see, anecdotally anyway, some evidence that maybe layoffs are kind of rising a little bit among certain companies and corporations, but that said, I mean, we have to kind of take into account that April and May were probably the peak months for uncertainty. And one report that doesn't get as much fanfare, which, you know, probably deservedly so in the sense it's more of a secondarily beneficial report, which is what they call the job openings report. And frankly, it was kind of surprising to see the numbers for April actually tick higher for the first time in a while.

So in terms of putting that into context, you know, it was a month where tariffs were at the highest probably level of history, the recent history anyway. And yet at the same time, it seemed like many companies were actually creating more jobs and essentially putting more openings out there for people to take advantage of. And I think that again is still somewhat beneficial, but I think we're going to have to still kind of wade our way through the summer and see if there's any last impact from tariffs and other things that have been already implemented thus far. I think the other news this week, I think it was kind of interesting on the geopolitical side that it appears anyway, it appears that maybe some thawing again is happening between the U.S. and China. It's been kind of an on again, off again, Xi said, Xi said kind of, I guess, tit for tat discussions of the late, but I think it was positive nonetheless that both sides came up just the other day or so and said that talks are ongoing and talking is better than not talking. So we'll kind of take that at good news.

We also closed the month of May when we got together last week and it was kind of interesting. The month of May Steve anyways, a pretty strong month for the equity market. The old adage, I guess, sell in May and go away, I guess, didn't really come to fruition in the sense that the equity market was up some 6% or so in May. And thus far, it seems like the momentum is carrying forward into June. So Steve, as you think about what's happened, we've seen some interesting rotation amongst some of the Mag 7 stocks. We want to talk about those on these calls. Any things you're gleaming with respect to what's happening in the broader equity market or the Mag 7 stocks more specifically?

Stephen Hoedt [00:07:55] So a couple of things caught my attention this week, George. First, to your point on seasonality, sell in May and go away really is a, well, it sounds nice. That's not really the way the market works. If you look at seasonality. The period of time from May through July is actually, it's either second or third in terms of the best seasonal periods of the year. So if you sell out in May, you miss a pretty good run in the market, historically speaking. Now, the real part of seasonality that is interesting is that the market does tend to peak in the summer, but it doesn't peak in May, it peaks in the third week of July, which coincides with typically the end of uh, the end of Q2 earnings reporting season, and then we have trouble through October. So, so really the, the mantra should be sell, sell, is selling late July and buy again in October, not selling May and go away. And it doesn't sound, it doesn't sound as, you know, pithy and, and then sing-songy, but that's the way the market typically works.

So you know, we think that, you know, when you look at the setup that we have right now, we've got some momentum coming back into this market. We had a number of different breadth indicators signify really good things over the last month. And we've seen interesting rotation under the hood of the market where things like the defensive sectors, which led earlier this year during the market sell-off, health care, consumer staples, REITs, those things have started to underperform. And most interesting to us, Industrials has been leadership on this most recent rally, along with the Mag 7 names. So it's kind of a two-pronged rally being led by industrial cyclicality and tech, and to us, that's fairly healthy. Under the hood in the Mag 7, obviously, there's a lot of divergence. You've got a couple of the names and things like Microsoft and Nvidia doing pretty well, and you've got others like Tesla and Apple, which are having problems for their own reasons. Apple due to the tariffs and Tesla due to, well, you could call it the Trump and Elon situation. Let's just call it that. I don't know what else to say. I think earlier, George, did you call it The Big Beautiful Breakup? Something like that.

George Mateyo [00:10:44] That's right, maybe it’s a blow up, I don't know, to break up. Break down, I don’t know.

Stephen Hoedt [00:10:50] Whatever, whatever it is. Somebody's having a breakdown, but at the end of the day, it's really, it's kind of weighed on Tesla stock. So, you know, that within the context of the mag seven has been a laggard, but overall tech has been has been leadership over the last month to month and a half on this rally. And to us, you now when we put that all together, it's, it kind of looks like the market wants to make a run at new highs as we head into this into this mid-summer period. And then we'll see how things go, but I think we're likely going to have a new high here in the not too distant future, George, from my seat.

George Mateyo [00:11:32] I think the other piece of news that came out this morning in the jobs report, Rajeev, was the fact that wages actually ticked higher. That's probably good news for consumer spending in the sense that everybody likes to have a few more dollars in their pocket. As history has shown, once consumers have discretionary income, they're prone to spend it. That bodes well, but at the same time, that probably makes the Federal Reserve less likely to do anything with interest rates in the near term. What are you seeing this morning with respect to futures prices, for interest rates, and what's your thought about the Fed going forward?

Rajeev Sharma [00:12:02] Well, you make a very good point there, George. I mean, that non-farm payroll's print that came out, you saw the immediate reaction of the bond market. Traders immediately trimmed their bets on Fed rate cuts for the rest of the year. And now the market expectations are that they're pricing in less than 50 basis points of easing through the end of 2025. The market now really believes that the Fed will stay on pause through the summer. All those summer FOMC meetings are pretty much pegged to be pause. No rate cuts. And the odds of a September 25 basis point rate cutter hovering around 75% post the NFP print was being fully priced by the market is just one 25 base-point rate reduction for the year.

And it's quite a change from where we started the year where the market is expecting four to five rate cuts this year. You've seen other central banks go through with great cuts, but the Fed has really remained on this wait and see approach. Not just because of the data, it's also the uncertainty of a fiscal policy. There's a lot of factors that the Fed is kind of trying to weigh and I think it's making their job pretty difficult. The last thing the Fed wants to do is do a policy error by cutting too quickly and then having to reverse course. We saw those kind of policy errors in the ‘70s. We don't want to see that again.

I know the Fed has really been very careful in their approach to rate cuts and the immediate impact of this recalibration by the market now as far as rate cut expectations go can be seen on the yield curve. Right after that NFP print, we saw short yields rise sharply and it's kind of the market's easing their concern about the labor market. The two-year treasury yield moved higher by five basis points, got to four percent. The 2's 10's curve is flattening. The 10-year treasure note yield moved up by seven basis points and once again is inching towards that 4.5% point on the 10 year. We saw yields on the 10-year go as low as 4.31% just this week, and that was a new low for the month. And now we're seeing a complete reversal. The employment data signals ongoing resilience and hiring. But even as the 10 year approach is 4.5%, we have yet to see buyers start to step in. And I don't think the buyers are going to step into today at 4.5%.

What's really going to dictate the tone of the market through the summer is going to be this debate on fiscal deficits. The economic outlook will be front and center. Generally, what we've seen in the past, the unemployment rates and fiscal deficits, you know, used to really track each other quite closely, but not anymore. The gap between government borrowing and the unemployment rate is pretty large now. And that could put pressure on bond yields in the near term. Add to that, we have treasury coupon supply that's gonna be back-end loaded coming up next week. So with increased long end supply, you can expect long end yields to stay pretty firm. Investors will make room for these treasury options next week, so they're not rushing in to buy today. I think they're going to just see how this plays out next week before the Treasury options.

Now, the next Fed meeting is in two weeks, and that's where we're gonna see where the Fed members' thinking is at regarding rate cuts and their projections on the economy. But if you hear the Fed narrative that we've heard over the last week, there remains no rush to cut rates. It's this wait and see approach that's live and well, and then I think that's gonna continue with Fed members. Next week starts the blackout period for Fed speakers, so they won't be able to talk much, and we won't hear from them. And that might actually be a good thing for the markets. Might keep some calm in the markets right now.

And speaking of calm, if you look at credit markets, they've remained extremely calm, extremely resilient. Investment grade spreads, they remain in a tight range. In fact, where investment grade spreads are right now, we're just about seven basis points away from a 21 year tight. And that's pretty significant considering in early April, there was a lot of fears in the market that we're gonna see this credit blowout and we see spread start to widen significantly. All of that's been reversed. Even high yield spreads have narrowed about seven base points this week. Again, if you look at high yield credit spreads, they are showing zero signs of an economic downturn. So I would just say right now, the risk on trade remains in credit. Corporate borrowers are coming to market with new issuances. There's this big supply demand technical. So you're seeing a lot of demand for high quality investment grade paper. These deals are getting done at very attractive levels for the corporate issuer, but also satisfying the demand that we're seeing from investors out there for corporate credit.

Brian Pietrangelo [00:16:26] Hey, Rajeev, what are you seeing with other central banks across the globe as compared to the Fed?

Rajeev Sharma [00:16:31] You're seeing other central banks, they've already started cutting rates. They've been doing this for a while and you're seen them get towards the end of their rate cutting cycle. And what's happening there, I mean, if you look at Europe, they pretty much came out and said that we've gotten to our point in inflation where we feel comfortable that we may not have to do any more rate cuts after this. That was the takeaway from the recent European central banks rate cut and narrative. And I think what they've done is they've done a pretty good job managing their rate cut expectations. You saw yields start to drop throughout the rate cutting cycle for Europe. You're going to start seeing those yields start to move a little higher now as we ended the rate cutting cycle. We're getting towards the end of their rate cutting cycle. You used to always see the US move first. The Fed used to cut rates before the other central banks around the globe. That's not been the case this time. The U.S. has really been cautious, if you will, they've been very cautious on cutting rates. I think other central banks have gone through with rate cuts, and I think that's caused some of the angst from the White House that we should be seeing more rate cuts to fuel the economy.

But I don't think the Fed right now is in any mood to really follow other central banks. They're sticking with their narrative. Inflation is not coming down to their 2% target. There's uncertainty as far as fiscal policy goes. And I think right now the Fed's really going to have to really. Be very careful, especially in their next FOMC meeting, when they have their press conference, Fed Chair Powell's really gonna have to walk a tight line to not hint at when the first rate cut will be, but probably have to give a lot of details as far as where the Fed's thinking is when it comes to fiscal policy, these tariffs, what happens after the 90-day pause. Until we see something that goes into law, I don't think the Fed is gonna be in any mood to start guessing at what the future of tariff policy or fiscal policy will be.

Brian Pietrangelo [00:18:24] Great, thanks Rajeev. George, any final thoughts for investors as we have this little communication breakdown between a couple of people that just are good reminders for our audience out there?

George Mateyo [00:18:34] Well, as we haven't say, you know, you really, you only have to really worry about what's important and what you can control. And you can’t control the news, obviously, but you can how you react to it and how you respond to it. And I think that's probably one thing that in this, in this day that's more relevant than ever. And I think for us, it's going to be this moment where being diversified is going to matter a lot. So you don't want to have all your eggs in one basket, as they say, and diversification has helped. So if you're concentrated in a particular stock that might be in the crosshairs, it's probably good to diversify around that position as we see things going forward. We continue to think this is going be a risk on, risk off sideways market for a while. I think it's important to be patient, be diversified, and really think about what you own and why you own it.

Brian Pietrangelo [00:19:21] Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. In addition, 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.

Disclosures [00:19:56] We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.
The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.
This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision.
It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any federal or state government agency.