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 24th, 2026. I'm Brian Pietrangelo, and welcome to the podcast.
For all of you football fans, you're pretty happy as yesterday kicked off the NFL Draft, the annual opportunity for teams to recruit new individuals to hopefully promote them for success in the next coming years for the NFL team. It is being held in Pittsburgh this year and I'm sure all the Yinzers there are having a great time. It also provides the young athletes making the transition from college to professional sports to be a fit with their team that selected them and also weighed into the opportunity to become a professional athlete and succeed on the field and in life. So good luck to all the teams and the draft picks as they conclude the NFL draft in the next coming days.
With that, I would like to introduce our panel of investing experts. Some might say they're top draft picks in their own right. 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 two key updates on the economic release front, and then we'll talk about some other factors happening this week. First up, we've got the overall weekly and initial unemployment claims report, which showed very stable results at 214,000 claims. And again, this has been stable for roughly the past two years, which is one of the strongest indicators that we have right now for the labor market. Second, also this week, the Advanced Consumer Report came out, known as Advanced Retail Sales, and showed a very strong increase for the month of March, which was a positive 1.7% increase over the prior month. Now this doesn't sound like a big increase, but it is on a month-over-month basis. The caveat, however, is that the number is a nominal number, meaning that it includes price increases, and a lot of price increases came through in auto and in the price of gasoline, obviously, given the oil shock with Iran. So if you knock that down and exclude autos and gasoline, the month-over-month price increase was only about 0.6%. Now that number is still good, and it comes off the heels of last month's report, which showed a 0.7% increase month over month in February. So 2 decent months in terms of showing the consumer spending still has legs, and we'll continue to watch this as a health indicator of the overall economy.
Outside of that, not a lot going on in economic releases this week, so we'll talk about three other topics. Certainly we'll get an update from Iran with George and his comments on what's happening there with the Strait of Hormuz, other extensions of the ceasefire, and what's going on with oil and overall effect of the war. Also, we come back to the tariff topic, which has not been in the headlines recently with everything else going on, but it was interesting that the U.S. Customs Agency launched an online portal earlier this week that allows businesses to request refunds for tariffs that were collected under the International Emergency Economic Powers Act, which was the act used for the tariffs under President Trump about a year ago and was struck down by the Supreme Court. Now the key there is it's not everybody. It's only the businesses that were importers that actually filed the tax return to pay the import tax known as the tariff under the IEPA law. And so they'll have to see how that flows through, but it could amount to about $166 billion in refunds, and we'll try to give you more details as this unfolds over time. And lastly, probably most interesting, Senator Warren had some pretty good comments for Kevin Warsh within the Senate Banking Committee confirmation hearing for Kevin Warsh, who again was appointed and nominated by President Trump to be the next Fed chair within the Federal Open Market Committee, but you have to go through the confirmation process in order to make it through. So we'll talk a little bit about that with Rajeev in addition to the fact that coming up next week is the Fed's ongoing and regularly scheduled Federal Open Market Committee meeting on Wednesday where it's highly likely that they won't do anything with interest rates, but we'll continue to get a read from Jay Powell before his supposed exit next month when his term as Fed chair is supposed to expire on May 15th, whether it does or it doesn't based on whether Kevin Warsh gets confirmed before that or not. We'll also talk to Steve about Q1 2026 earnings and how that's going. But as we always do in the last couple weeks for about a month and a half now since the Iran war began, give an update from George as to what his thoughts are on the Iran war and what's happening in the general economy. So George, let's start with you.
George Mateyo [00:05:18] Well, on the economic side, Brian, it was kind of a late week, I think, overall. I think the biggest headline economic release came out this week was retail sales, frankly, which is something we don't talk a whole lot about. But it was a pretty decent report. And of course, it's kind of notable to talk about what's happening with respect to the consumer, given the fact that there is a significant amount of pressure, the setting of the consumer at the pump, at the supermarket and other places as well. You know, ongoing pressures and stresses around affordability are real. And despite that, though, the overall numbers for March retail sales were pretty solid. You have to kind of come through a lot of noise because there's a lot of things that are including that number or some things aren't. Of course, the biggest component or the biggest change in overall prices had to do with what happens at gasoline prices. And that's another element of the overall retail sales number in the sense that gasoline prices, of course, were quite elevated. And that kind of caused the price numbers and also those sales numbers to lift. If you strip that out and look beneath the headline, you'll see essentially a pretty good report overall in the sense that sales across the board came in faster than expected. And there were things like furniture and general merchandise and even things like e-commerce sales were all pretty healthy. And maybe that's somewhat because of tax stimulus and other things of whatnot. But overall, I think it's fair to say that the consumer seems to be, for now anyway, in pretty decent shape.
Now, we can't overlook the fact that we have seen some significant changes in the past few weeks or so because of the situation in Iran and the Middle East. We're seeing companies starting to ration back certain items and certain services. Notably, the airlines that are probably feeling the pain most acutely are talking about rationing flights. And that's just going to cause prices to go higher. And that's going to probably cause consumers to pull back at some point maybe later this year. So I think it's still TBD. I think the war itself continues to kind of drag on a little bit. It's really not quite clear exactly how we might get some ultimate resolution here. But I think we're kind of working towards kind of some kind of stalemate maybe where there's probably some lessening of tensions, if you will, but really not a lot of clarity around overall resolution. And that's just going to probably create maybe some overlying kind of headline risk and some volatility in the short term as we get some closure perhaps later this summer. So we'll see. Hope it doesn't quite last that long. I think both sides, frankly, have reason to negotiate and try to reach some resolution, but it's unclear exactly how we might get to that in the near term.
The bigger issue, as I kind of teased earlier, though, I think has to do with what happens next in the labor market. And I think there were some interesting headlines this week from many companies that are really at the forefront of AI. particularly a few companies in the technology sector and software more specifically, companies that actually announced some pretty notable layoffs. And again, we have to talk about this in the context of the broader economy. These are certainly big numbers for the individuals involved and the companies involved, but we still have a labor market of some 160 million people. So when we're talking about a few thousand jobs, that's kind of thumb all in routing sense, but I think it matters nonetheless. And then directionally, Steve, I'm kind of curious to get your thoughts on this kind of overall believes within software. And think of those companies that were at the forefront of these layoffs are in the software space and they're kind of moving towards AI. So if you think about this, is this more of a profit kind of motivation story? Are these companies trying to protect their margins or is this really more of a fundamental shift towards AI and away from physical labor?
Stephen Hoedt [00:08:41] So, George, I think there's a couple of things going on here. So first, like when you look at Meta and Microsoft, those are the two names that we're talking about. The Meta has historically gone through a period where pretty much every year or every two years, they literally decimate the workforce, using the Roman term for culling the bottom 10%. And like I... I don't know that I would really draw too many more conclusions from the meta piece of this, other than they're proceeding with what they always do, which is try to push out underperformers. I mean, they're very vigorous in how they rank their people, and you know, maybe it's possible that AI is making it easier for them to do that than in the past, but you know, meta, I think, is one piece. Microsoft is a bit of a different one because It's very clear that when you look at all of these software companies and Microsoft is no, isn't immune to this, the impact of AI on software jobs is one of the areas that is ground zero for determining how this technology is going to be adopted at an industrial level across the economy. It's, and we're starting to see that. Now, how quickly that's going to happen elsewhere, I don't know. And you could argue that this is kind of just a minor step forward for a company like Microsoft, because they still have quite a large number of employees, right? But at the margin, they're all spending a lot, a lot of money on the infrastructure for this. and they need to see a return on it. And one of the ways that they're going to get a return is through cost cutting internally.
George Mateyo [00:10:43] We also saw, Steve, a pretty interesting bounce, if you want to call it that, or something maybe more pronounced in semiconductors. And so one company in particular is Intel that's getting a lot of press these days. Is that real? Is that the kind of a shift that kind of speaks broadly about the AI build-out, or is that more something that's company-specific to Intel?
Stephen Hoedt [00:11:02] It's kind of funny. I mean, I do think that Intel has been a bit backstopped by the US government. So there's a different dynamic at play there. And very clearly, when you look at the geopolitical situation, it does kind of bring home the idea that, you know, we're going to see these global supply chains become less globalized as we move forward. And Intel's a beneficiary from that. So there clearly is legs to that story. When you look at it from a markets perspective, leadership has been reasserted by tech and communication services over the last month. Like this rally off of the lows post-Hormuz crisis onset has been led largely by semiconductors, which is driven tech. We've had a bounce in software over the last two weeks, and it's been driven by communication services stocks. So those two things, I mean, that had been, they had not been market leadership from the beginning of the year through April. So we did, so we saw a rotation coming through this crisis period, And what I always tell people is when you go through a crisis period, whatever emerges as leadership on the other side is likely going to be leadership for the next leg of the market cycle. And I do have to say, I admit I've been a bit surprised by it because we had seen cyclicals take over leadership at the beginning of the year. And those have really come off the boil during this bounce in the market. So you've seen industrials financials led by banks, material stocks, not just energy. I mean, you'd expect energy to sell off when price of oil drops by 20 or $30, but the rest of these industrial stocks have come off and so has consumer discretionary. So like you've had a very pronounced rotation once again into the tech and the, for lack of a better way, of putting it the high beta part of the market. And I think again, it's caught people off guard. This market has found a way to catch people off guard pretty much for the last six months running. You know, every time you think you've got something that you can latch onto as an investment theme, the market rotates and you get caught out on the other side.
George Mateyo [00:13:31] So sticking with the AI theme for a second, Rajeev, I'd love to get your thoughts on this. There's been some interesting, I guess, for lack of a better term, research that has been published by a couple notable think tanks, one on the West Coast, one on the East Coast, won't name names, but I think it's interesting because they talk about AI. They talk about the fact that this really could materially increase productivity in a major way, but the games themselves would be pretty uneven. And they kind of have talked about maybe bifurcation for those companies and those organizations that actually adopt AI would actually probably see some real benefits. Those that don't will probably be left behind. And it's not just putting some software in, it's really trying to integrate this into workflows that can capture some bigger benefits. So my question to you, Rajeev, this has to do with the Fed Reserve and how they might think about productivity. Of course, we have a potentially new Fed chairman that's going to step in who's been talking a lot about this too. And I wonder, do you think that to some extent the Fed is focused on the disruptive nature of AI, or are they just going to focus on other things for the moment?
Rajeev Sharma [00:14:31] It's a great question, George. I do think that the Fed and many Fed members have been pretty vocal about how the impact of AI is going to resonate with their dual mandate being that of inflation and maximum employment. So I think there's a lot of sentiment in the Fed right now. A lot of Fed members feel that AI is not going to disrupt their dual mandate too much. They think that any type of inflationary pressures that we're starting to see and we're going to continue to see could almost be mitigated by advancements in AI. And I haven't heard a lot of Fed members really talk about the impact of these layoffs that we're hearing about and what impact that's gonna be on the employment numbers. It's almost as if Fed members right now are very focused on inflation and they're very focused on the war that's going on and the impact that it's going to have on inflationary figures and inflationary data points that come out. Because those data points are going to be elevated and they're going to be inflationary. And they're not going to be trending towards what the Fed wants to see, which is disinflation. So if we're moving further away from the 2% goal that the Fed has and You got to believe that that goalpost is not going to change right now because you do hear Fed members coming out and saying that advancements in AI should be able to actually help the inflationary picture. We don't know exactly how that's going to play out. So these unexpected uncertainties that are in the market right now, I think that continues to weigh on the Fed. But what it's all done, all this being said, what it's done is it's put a Fed on hold, at least in the near term, because the Fed's not going to cut rates if inflation's not going to come down, or at least start to show a disinflationary trend. There's no urgency by anybody to cut rates right now. If you hear the Fed members speak, none of them are really coming out there and saying that we should be cutting rates right now, except for one dissent that we had in the last FOMC meeting. We may see the same dissent in this upcoming meeting that we have next week. Nobody's anticipating a rate cut next week for the FOMC meeting. Rate cut expectations by the market have diminished. for 2026. As I said, we don't expect the Fed to do anything next week. Based on those market expectations, the Fed at best would have one rate cut this year, and even those odds are quite low. The FOMC meeting is going to most likely point towards economic data. And again, that data that we've been seeing leaves little room for a rate cut. The economy is fine, according to the Fed, but price increases have persisted, and even dovish Fed members are pointing towards having patience right now. So all of this has really taken its toll on the bond market as well. I mean, we saw back in March where the aggregate bond index was down very heavily. It was a very terrible month for the bond market. We snapped back to some of Steve's points. It's amazing how much resilience that we got back in April and how we snapped back in the bond market. We saw a lot of those tech-heavy companies not feel fearful about coming to market with new issues. They were being received very well by the investment community. And again, we saw yield start trend lower in the month of April. Now, last week, however, or this week, we did see that treasury yields have moved slightly higher. And you have a 10-year right now that's around 4.33%. We were getting close to 4.5% last month. 30-year is also around 4.92% right now. And you have a two-year that's around 3.7%. What that means is the front end is very impacted by monetary policy. and the shape of the curve is dictating that. So if you believe that the Fed's not gonna be cutting rates, there's really little reason for why front-end yield should go low. And because of that, we've had a flattening of the yield curve, which I've mentioned before is the pain trade in the bond market right now. Many, many investors are pointing towards a steepening trade, or they've had their money in a steepening trade, and the curve remains flat. This week, again, we've gotten a flatter yield curve. Now, the curve itself, if you look at the differential between a two-year treasury yield and a 10-year treasury yield, you're around 50 basis points. And we've been around this 50 basis points for quite some time now, a couple of weeks. We did get down to 48 basis points this week, but that was short-lived. The curve really wants to steepen, but the only way that's going to happen is if we get some kind of resolution on this war, we get some kind of Fed members that are pointing towards at least some rate cut this year. If we don't get that, we're going to see the front end continue to be elevated. And you're going to see the impact in other areas as well. I mean, we talk about money market funds. You don't see a lot of rotation out of those funds right now because why would you? You've got pretty decent yields in money markets right now, so that's not happening. So we need to see some kind of certainty in the market. We just haven't had it. And what we have had is the fact that we are going to have a new Fed chair at some point. We did have Kevin Warsh come to the Senate Banking Committee this week. He had a testimony. I thought that was very telling for the market. I think many people expected him to come out and really talk about rate cuts and we need to be cutting rates. And he kind of stayed away from that a little bit. He also pointed more towards how important central bank independence is. I think that was well received by the market. But there were some highlights in there that even though he talked about Fed independence, he talked about not being a sock puppet for President Trump. He did say that he's going to make the decisions that he puts forward are going to be in line with what the Fed is supposed to do, and that is supposed to be their dual mandate. But what really I think concerned the market a little bit was kind of his ideas about we should not be having a lot of forward guidance. And the market has become very accustomed to dot plots and forward guidance and where the Fed thinks rate cuts are going to go, where monetary policy is going to go. If we take that away from the market, you could expect more volatility around those timeframes when we have an FOMC meeting. So I think that's going to be very important to watch. So I think that did move the market a little bit.
Stephen Hoedt [00:20:26] Hey, Rajeev, while we've been on the call, ABC News is reporting that the Fed is, or the DC district attorney is going to drop the charges on Powell probably as early as today.
Rajeev Sharma [00:20:43] Oh, that's, so that's, that's very interesting news. And I think to that point, you know, that again, you know, you're going to start seeing whether Fed Chair Powell stays on as a, as a Fed governor. I think In the past, we've seen a lot of Fed chairs pretty much right off into the sunset when their term's over. This time you did see Fed Chair Powell in the last meeting say that he would stay on. Many people thought as long as this DOJ subpoena's investigation was continuing, he would stay on. There's also that talk about Tillis, Senator Tillis saying that he would not allow for anybody else to be nominated as Fed chair as long as this was outstanding. So I think this also opens the road up for Kevin Walsh going forward. Very good news right on the fly. Thank you for that, Steve.
Brian Pietrangelo [00:21:26] Definitely. So for our listeners, all that commentary was around the prior comment that, again, for a reminder, everybody, Jay Powell's term is up May 15th. Kevin Worse has been nominated and has to go through two rounds. One is with the Senate Banking Committee and one is with the full Senate to get confirmed by that time. If he doesn't get confirmed by that time, Powell stays on and that won't be pleasant for President Trump. And Tom Tillis, senator from North Carolina, had threatened to block Warsh's vote and could because it was a 13 to 11 vote. And if it's 12 to 12 at the time, he might lose. Why did he say it? Rajeev, you said it. If the Trump organization or the DOJ doesn't drop the suit against the Fed for Jay Powell for building too much on the new building and the cost overruns, he would block Warsh's vote. With Jeanine Pirro saying she's going to drop that now and go over to the Inspector General rather than the DOJ, it might provide Tillis the opportunity to give the green light. Very interesting. Any other thoughts, Rajeev?
Rajeev Sharma [00:22:23] No, I do think it's very interesting. And I do think that, again, the market's looking for some kind of certainty, and uncertainty is not good for the market. So if this pushes in that direction, I think it's good for the bond market, good for risk assets.
Brian Pietrangelo [00:22:35] Well, thank you for the 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 within 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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