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, March 6th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. As we head into the weekend, you may or may not recall that this is daylight savings time weekend where we turn the clocks forward to actually spring forward for daylight savings time. So take a look at that and remember to turn your clocks Saturday night. We've got a lot to cover this morning in today's podcast, so I'd like to introduce our panel of investing experts here to provide 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 activity, we've got a few reports, but more importantly, we will start with the geopolitical news that everyone is certainly aware of with the conflict in Iran and the military action from the United States that began over the past weekend and has carried throughout the entire week. As we end on Friday here, it continues on. We'll obviously have a discussion about what this might mean for the markets and the economy and everything else that we can give a perspective on, but specifically the markets and the economy with regard to oil, possible inflation, possible effects on the market and the economy. On the economic side, we've got three releases to talk with you on. The Institute for Supply Management, earlier in the week, instituted its release on the manufacturing side of the economy. And for the second straight month in a while, ending in February, the read came out that manufacturing continues to be in an expansionary territory. Now, this is good news. We'll continue to look at the cycle to see if it continues more than just two months, because the manufacturing sector has been in contraction for quite a long time nearing around five years. On the services side of the economy, same Institute for Supply Management report just came out on a different day, showed that the services sector continues to expand and has been in expansion again for quite some time, for about five years. So good news there on the services side of the economy. And second, we have the Federal Reserve's Beige Book report, which came out on Wednesday. As a reminder, this comes out roughly two weeks in advance of the next Federal Open Market Committee as a report on overall economic activity. And that report showed that there were slight to moderate increases in seven of the 12 Fed districts, while the rest of the five reported flat or declining activity. And finally, or third, just this morning at 8:30, we have the update from the Bureau of Labor Statistics on the Employment Situation Report, which includes new non-farm payrolls, the unemployment rate, and a number of other factors related to the employment. So, we will talk to our panel on all three of those items in addition to the market volatility that we have experienced due to the Iran conflict, and we'll also get our take from the panel on what that might mean. So, George, let's start with you for our listeners on your take on the summary of our thoughts on what the Iran conflict might mean for investors, for the market, for the price of oil, and for inflation in the economy. A lot to talk about there, George, so let's start with your thoughts.

George Mateyo [00:04:04]

Brian, I think the story of the week is, of course, the situation in the Middle East. But really quickly, just turning to some of the more recent announcements, that gave this week, just purely economic readings were pretty healthy overall until this morning's jobs report. We had a pretty good spate of numbers this week that suggests the overall economy was doing OK. But then again, the report this morning on the job side suggested something different. I look at things, for example, like ISM surveys, which we don't pay too much attention to because it's more anecdotal, but nonetheless, the market kind of gravitated towards those in the sense that we saw some good strength in the manufacturing stature. We also saw an initial report on the employment side that suggested things were okay. But then this morning's unemployment report, which was a bit negative, more negative than people expected. I don't think, frankly, anybody had in their forecast that we would see a negative print of almost 100,000 jobs lost, I guess just adds fuel to the fire. So I think overall right now, there's probably some questions around just a broader macro backdrop. At the same time, we have a big geopolitical event that seems to be intensifying. That's not a great combination for risk assets in general, and therefore, it's not surprising to see the market trade down this morning. I think if I kind of put this all in the context, though, again, I think the energy situation, I think the geopolitical situation is a real event. As we've said before, though, these events are man-made and they can change pretty quickly without little warning. And so as we said before, I think really what happens next is really going to be predicated on how long this conflict lasts, up until maybe just yesterday or so. I think the market was hoping and anticipating that the conflict would be short-lived. We've kind of long thought it would probably take longer than that. We were out, I think, earlier this week thinking this could be a conflict that lasts weeks or maybe a few months or so, but maybe it's not going to be over in a few days, was kind of the under we were taking. And we also have to recognize, I think, that what happens in the all-important Strait of Hormuz was something that was something we outlined on our client call on Wednesday, which, again, is a critical choke point for oil. And we'll talk to you, Steve, in a second to get your thoughts on that. But I think it's important to recognize that we don't want to have investors making some big abrupt shifts to their portfolio because things could change pretty quickly as well on the upside. I think it is going to be probably some significant headwinds. This morning, for example, Steve, I saw that the president was talking about insisting on unconditional surrender. So, it doesn't seem like he's willing to kind of concede pretty quickly. And again, this conflict can wage on a bit further. So if you think about this this morning, Steve, you kind of put us together, we see oil kind of, again, spiking higher. Any thoughts from you in terms of where maybe energy might be going or what things we should be looking out for to try and engage when this conflict might come to some resolution?

Steve Hoedt [00:06:45]

Yes, George, you know, my team and I, we spent a good chunk of the afternoon yesterday talking about how the energy markets hadn't really priced in much disruption yet. In fact, the market, if you kind of try to figure out what was implied, it was implying that the situation would end in the next four or five days. And, you know, when you look at the reaction this morning, I'm seeing crude oil spiking by 10% in New York trading. It seems that the market is starting to come around to our point of view, which is that this has all the hallmarks of something that's going to drag on for a little while. Now, that said, when you look at all of the major global players who are involved in this, it is to no one's benefit to have the Strait of Hormuz closed and to have oil not oil and gas, both, not flowing through there. The Strait of Hormuz is, at its narrowest point, about 21 miles wide. And no matter what the administration here in the U.S. says it's going to do by providing escorts and insurance coverage and all this, there is no global insurance company or shipping company that's going to send a loaded tanker through that strait while there is a conflict going on.

George Mateyo [00:08:12]

And to put that in context, Steve, not to interrupt you, but I mean, just to kind of put that in context for our listeners, I think, what is it, like 20% of the world's oil flows through that body of water every day or used in any way when it was open? 20%, that's a big number, 20%.

Steve Hoedt [00:08:26]

Yeah, 20% is not an insignificant number. Now, most of the oil does flow east from there. Most of the oil flows to China and in Asia from there simply because of location. If you think about the LNG situation, all of the Qatari LNG gets shipped through there. The Qatari’s do not have pipelines to ship their LNG to global markets like Europe and Asia. It has to go on LNG. They have shut down all their LNG trains.

George Mateyo [00:08:59]

LNG, Steve, just again for our listeners, LNG is what?

Steve Hoedt [00:09:03]

Liquefied natural gas. So basically they have the largest gas field in the world, but they have to liquefy it in order to sell it into global markets. So all their LNG trains in order to liquefy that gas that they pump out of the ground have been shut down due to risk. I mean, you don't want to know what the hole in the ground would look like if something got blown up that consisted of LNG. So I think that The longer this goes on, the more disruption you're going to see in global energy markets. You're going to see people pricing probably $100 oil within the next week if this situation stays where it is. We, quite frankly, were shocked that we didn't get the $100 on oil quicker. That pain point will kind of start to push on policymakers to make decisions. I mean, you could easily see the Chinese pushing on the Iranians or frankly working with the Americans to do this. I've seen some speculation that part of the reason why the U.S. is doing this right now is to push back on the Chinese because they know that the Chinese have a need for Iranian oil just like we have a need for Chinese rare earth metals. So, it's kind of like a point of global geopolitical negotiations, but Look, at the end of the day, it's unfortunate some of the stuff that's happening, obviously, and we continue to watch it. Markets, we saw the S&P 500 breakdown from this box that it's been in for the last six months. It does look like that's opened the way to the downside a little bit for a little bit of a deeper potential correction here. We saw more concern for me this morning. is we saw the volatility futures curve invert. So, we watched this to start to see if there's panic creeping into the markets. And now for the first time, since the onset of the conflict in the Middle East, we've seen the volatility futures curve invert. That means that the near month is trading at a premium to the far month. That is something that is very unusual, and it only happens in times of market panic. So we're getting to a place where the market is dealing with this. But it is a process to put in a bottom, and we don't think that we're there yet. The 200-day looms about 150 points below where we're at today. We're at 67.50 as we talk right now. 65.80 is the 200-day moving average. It would not shock me in the least to see us test that, George.

George Mateyo [00:11:48]

So, Steve. I think, again, the word you use, the most important word I think for our listeners to pick up on is the word process. These things do take time. They're not really marked by one immediate event. Sometimes this does take a process to recover and find our footings here. Steve, are there any areas of the market though, any defensive areas that you would point to? I know you've been right for quite some time to be overweight energy in our portfolios that you manage, but anything that you would probably have our listeners think about in terms of places to hide or some type of place of

Steve Hoedt [00:12:20]

I think that you, you know, unlike historically the last 10 or 15 years where you wanted to put money into defensive technology and software names, I don't think you use that playbook this time because of the disruption that we've been talking about on this podcast and other places coming from AI. So I do think that you stick with the traditional defensive areas of the market, which is consumer staples, healthcare, utilities, that kind of stuff. The move that you can see in energy and materials, those kind of things, I think if you get, we think that the cyclical theme and the rotation that we've seen over the last three to five months based on the AI theme, we think that that rotation into cyclicals as well as defensives is durable. There are underlying fundamental reasons for it. So there may be a situation where, because of the market volatility, you get an opportunity to, if you did not have energy positions or positions in materials or industrials, you get a chance to buy some of that. On a pullback, we would be all for investigating those opportunities with your advisors.

George Mateyo [00:13:33]

Thanks, Steve. So, Rajeev, let's into this fun conversation here, talking about geopolitical events and talking about maybe a kind of a whiff of stagflation, right, which essentially means that we have this oil shock that all is equal probably mean higher prices, right? We'll probably see higher prices at pump. This is probably going to impact food prices and other things as well. If this persists, again, that's the key phrase. I think if this is something that's a really protracted engagement, we could see some elevated price pressures. At the same time as we talked about Rajeev this morning, the growth numbers on the employment side suggested maybe some softness. That's a tough environment for the Fed to navigate, right? I think they want to probably be responsive. I think they're probably still somewhat fearful of the inflation shock from just a few years ago, but at the same time, growth is slowing. And, oh, by the way, we've got a new Fed share probably coming into the next sometime in the next few months. So how does that actually kind of factor into your thinking about where the fixed income market is headed?

Rajeev Sharma [00:14:27]

Well, it's a lot to unpack, George. And you know, what's very interesting is that we ended February with the bond market posting the strongest returns it's had in the last one year. And so you go into March with this notion that, okay, where do we go from here? And where we went was yields went higher and we gave back a lot of those returns just in one week in March. And this is really a function of bond yields moving higher across the curve. I mean, just to think we ended February with the 10-year treasury note yield below 4%. We had been hovering around 4% for quite some time, probably since back in in December, but now we're here. We were here at the end of February below 4%. And now within the course of one week into March, we see the tenure above 4.17%. These are big moves. The Iran conflict has moved oil prices higher, as Steve mentioned, and in turn, it's questioned the impact to inflation. And that's kind of dictated the bond market moves. With higher oil, you have higher and more stubborn inflation, which then brings the Fed rate cuts back into question midweek. The market expectations for two rate cuts by the end of the year came into question, with the market now at that point in midweek, the market was anticipating less than two rate cuts for 2026. And that's even with the new Fed share taking the helm in June. So, this has caused a flattening of the yield curve, which has the market looking at higher oil prices in a longer than expected Iran conflict. That is a combination that has traders pricing in a worst case scenario that maybe the Fed just halts its easing campaign altogether. If we saw the Fed minutes from the last meeting, there were a few candidates that said, there were a few voting members that did say that maybe we should not cut rates at all anymore. In fact, there were some calls for hiking rates. So these are all coming to question midweek. And the difference between a two-year treasury note yield and a 10-year treasury note yield, or what we like to call the 2-10s curve, has reached a new low since November. That differential between a two-year treasury note yield and a 10-year treasury note yield is around 50 basis points today. Just at early February, that difference was around 74 basis points. So these are big moves. Yields have whipsawed around after the jobs report that saw U.S. employers cut jobs in February and the unemployment rate moved higher. This points to weakness in the labor market that many thought was stabilized. The jobs report now refocuses the Fed's attention back to the labor market and keeps the Fed in this wait and see approach that they've been in this holding pattern for some time now. Policymakers had somewhat shifted their focus to inflation because of the conflict in the Middle East. But now with the jobs report, the focus again goes back to their dual mandate, price stability and maximum employment. So we have seen yields whipsaw around. First with the jobs report, we did see yields start to reverse the earlier rise. We saw yields start to drop. But then again, with oil prices moving higher, yields are starting to go higher again with those inflation concerns taking over the market narrative. And then you add to that some other issues that are going to keep yields higher. You have a total of $119 billion in long end coupon supply coming next week. That only adds to the bias for traders to want to sell in this market. And then you add on top of that $60 billion in corporate bond issuance that's expected next week.

George Mateyo [00:17:47]

These are big numbers, Rajeev.

Rajeev Sharma [00:17:48]

These are very big numbers. Many corporate bond issuers decided that they were not going to come to market this week because the conflict had just started. They were going to wait and see that we get any kind of certainty of when this conflict can end. Now there's a backlog. So they have to come to market next week. $60 billion in corporate bond supply is going to also weigh itself on the bond market. This supply naturally causes some selling pressures as portfolios have to make room for it.

Steve Hoedt [00:18:15]

I was going to say, Rajeev, are you shocked that you haven't seen a larger of reaction by the short rate markets in terms of starting to maybe price in earlier Fed action. Because when I do my work go on Bloomberg, which shows those probabilities, we still haven't seen much change yet, even in reaction to that, you know, kind of very, let's call it lukewarm jobs report this
morning.

Rajeev Sharma [00:18:49]

Yeah, it was completely masked, I think. The reaction happened fairly quickly, but the knee-jerk reaction was there where we saw yields move lower. But then immediately, oil takes precedence again. You start thinking about inflation, the impact of inflation. And then you have all these questions about a new Fed chair coming in. So I think the market really doesn't know how far to take this. I would think yields would be higher in the front end with some of this stuff coming out, oil coming out, how important that is for inflation.

George Mateyo [00:19:16]

Steve, going back to you on the commodity side, what do you think about gold these days? I mean, it's been kind of acting kind of oddly in the sense that sometimes it's been kind of viewed as a safe haven of some sorts, maybe again during geopolitical events, but it's been pretty volatile this week too. So any thoughts on gold?

George Mateyo [00:19:31]

Yeah, gold has kind of gotten all over the place last week. It's not exactly like what we saw at the end of January and early February, where we had a $1,000 range in three days, but we have seen almost a $400 range in a two-day span at the beginning of the week. And we've kind of settled into the bottom end of that range, just above 5,000, I should say, right now. I think that if you look at this price action, To me, it's been very constructive. The recovery off of the January-February lows shows that there has been legitimate buying pressure on that from whatever, whether it's central banks or individuals or investors allocating to it. And it seems to have retained its strength as a non-US controlled asset. Where do we go from here? It's a good question. I mean, we pulled back a little bit with some of the risk off nature of the tape at the beginning of the week, but we still are firmly above $5,000, George.

Rajeev Sharma [00:20:42]

Yeah, and to add to that, treasuries are also viewed as safety haven asset all through February. And that was as the conflict was building up. The conflict starts and the safety haven nature of treasuries goes out the window when you start seeing oil prices and a Fed that may not be moving anytime soon.

George Mateyo [00:20:59]

So lots going on for sure. I think we'll kind of end it there, but I'll just kind of remind people that, again, this is something that's one of these things that the fog of war creates a fog of markets, right? In the sense that it really kind of distorts a lot of cross-currents, and it's really hard to kind of navigate our way through this. It is tempting to some extent to probably try and get out of positions or sell things in your portfolio. That's probably the wrong thing to do, however, because over time, markets do tend to settle up. And what I mean by that is that we have history to kind of draw from. Not to say that every conflict is the same, and this will probably be different in many ways that we just can't anticipate. But given that, we really would encourage people not to make any bold moves. Steve talked about using this as an opportunity to maybe lean into some positions. I think Rajeev would agree with that as well. And so there are gonna be some opportunities that probably arise from this, and we'll probably be identifying some of those in the week ahead. So with that, please stay tuned. If you have questions, please reach out, and if we can be of help, please let us know.

Brian Pietrangelo [00:21:57]

Well, thanks 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 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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