Brian Pietrangelo [00:00:02] 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, July 25th, 2025. I'm Brian Pietrangelo, and welcome to the podcast.

Unfortunately, this week marks the death of some pretty big music icons in the world. We go from opposite ends of the spectrum on the music genre scene, first being Ozzy Osbourne, who was a pioneer of heavy metal and had a number of bands and great songs in the mid-90s and ultimately just a great talent. Similarly, but on the opposite side, we have jazz musician Chuck Mangione, who was ultimately famous for a lot of the music that he did produce in the 1970s. Including a number of great hits. So again, passing of the two legends in both areas of the music genre.

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, and Steve Hoedt, Head of Equities. 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 only have two economic releases for you this week. It was a pretty light week. We'll make up for it next week with some heavy different releases, but for this week, pretty light. First, we'll talk about the initial unemployment claims report for the week ending July 19th and it came in at 217,000, which was down 4,000 from the prior week and has been very stable and on the decline the last 3-4 weeks, so good news there in terms of the report for the robust employment market. And second, overall existing home sales fell 2.7% in the month of June to a total of roughly 3.93 million units. Again, the existing home sales has stalled a little bit as we have talked about many times on this podcast over the past six months or so, given the fact where mortgage rates continue to be and the unwillingness for owners to sell their home and then take on a mortgage rate at a higher level. So we'll look at that on an ongoing basis.

Other notable news for the week is the European Central Bank or ECB did pause their cutting cycle after cutting significantly, roughly eight times. And that's at 2% for their rate. So it will come into play as we talk about the Federal Open Market Committee meeting next week and Fed policy decisions, just as it compares to what's happening in Europe. Also speaking of Fed policy, but not really policy, President Trump visited the Federal Reserve building renovation and had a conversation with Jay Powell just yesterday. So we will talk about that with our panel today to get the reaction.

And speaking of President Trump, we will also cover ground relative to an update on tariffs from George. And so we'll start with that conversation right now. So George, the second extension of tariffs is coming up next week on Friday, August 1st. So in terms of some progress made with the EU and with Japan on rates maybe near 15%, where do you see that going? And then also on the Fed independence conversation that we've been having along with the visit of J. Powell by President Trump. What would you characterize it as, one end of the spectrum or the other? Do you think it's on the road of a crazy train, or do you think it maybe feels so good? What are your thoughts, George?

George Mateyo [00:03:52] Well, Brian, I guess it's a bit of both, right? I mean, things do feel a bit crazy these days still, but the market's feeling so good, to use your pun a little bit more, in the sense that we're still floating right around all time new highs.

I think just taking a step back, though, with respect to the tariff situation, it was notable what happened this past week in the sense that the U.S. did reach some agreement with Japan. That was kind of a major development and that side. And I think it's probably fair to say that the step down from what was feared in terms of the overall tariff rate to what is more reality seems to be pretty palpable and, like you said, feeling good news around that situation as well. More specifically, I guess the deal was kind of around a 50% tariff. I think there were some concerns that those tariff rates might be as high as 25%, particularly related to the auto sector, and that's a pretty big sector in terms of exports from Japan. So I think we've kind of seen some easing there when we go down from 25% to 15%. That's a good step down, and it only kind of modestly adjusts the overall tariff rate, which is something we've tried to focus on a little bit. Around the overall impact, broadly speaking, economic-wise.

So again, the overall tariff rate, it's kind of interesting, I guess, Brian, in the sense that the tariff rate began this year around two, two and a half percent or so. It got, I guess there were concerns anyway, it didn't really get to that level, but there were some concerns that that rate might spike up close to 25% or 30%. And when you kind of put that into the sausage maker, I guess you could say, you can generate some pretty bad outcomes for the economy. I mean, when you take tariffs up that high, the models suggest that you probably see economic growth slow quite notably, and you'd also see inflation pick up. And so we've kind of stepped down from that 30% to something kind of in the mid teens and the markets taking that is good news that the elevator rate of 30% is going to be less than half that or roughly half that at 15%. So again, it's still come down quite a bit, but it's so elevated, right? We've still seen kind of tariffs move up from 2% to 15%, which again is a pretty notable step function up.

But nonetheless, based on some of the headlines and based on what we've seen so far from corporate earnings. Most of the companies seem to be drawn to that. And that was one of the wild cards that we also had to kind of factor into this tariff situation is that nobody really knew exactly what the rates would be. We still don't. They're still very much a moving target. And next week, of course, will be a big week to watch with respect to what happens with China. But once we know, once we think we know the rate, we still don’t know exactly who's going to pay those tariffs. Will it be the exporter? Will it the importer? Will it pass on to the consumer? And frankly, we just don't know. So there's a lot of variables. And as we've tried to suggest for much of this year, because of these multiple variable dimensions, you know, it's really hard to put a forecast together and set a range of forecasts is probably a better way to think about this.

But nonetheless, the economy seems to be kind of chugging along. We're going to get, of course, some key readings next week. I think that's going to play into what the Fed might do as well. But I think next week, just to remind our listeners, of course, is going to be jobs week where we're going to get a lot of fresh data on the job situation. And by all accounts, it could be a pretty decent report in the sense that we haven't seen a significant slowdown. We've seen some slowing, but it's not been a big slowdown in the overall economic numbers as relates to jobs. And that's important because as long as the labor market stays healthy, in our view, the Fed probably stays on the sidelines and they don't have to cut rates. Now, you'd be kind of curious if we've got a stronger than expected print. I think the overall estimates right now are around 100,000 jobs being created for the last month and that's a pretty decent report. But if it peaks up more than that, who knows? We'll have to see what that means if we get that number.

But nonetheless, for now, it seems like the economy is still quite resilient. Some of the survey data is actually kind of turned slightly better. It's not gotten worse, which is good news. And again, on the earnings side, we've seen companies continue to exceed expectations. Recognizing, of course, that the bar was pretty low coming in this quarter. But overall, the numbers seem to be pretty decent. I think that's my read, Steve. I'm not sure if you've got anything to add, but I'm kind of curious to get your thoughts on kind of where we are from the equity markets perspective, and what you’ve seen so far as relates to corporate earnings.

Stephen Hoedt [00:07:58] It's the middle of summer, George. So while there's doldrums starting to emerge, there definitely is information content and some of what's going on in the market. You know, the market, we've talked about it almost every Friday for the last couple of months, but another Friday, another set of new all-time highs this week for the S&P 500. You know, there's some stuff under the hood that I'm watching, and I would tell you one of the more important ones is the fact that the equal weighted S&P 500 is less than half a percent or so away from making a new all-time high itself. And we've had a lot of talk about how the market's been concentrated, it's all the mega cap tech stocks that are driving this, and all that kind of conversation. Once we see the equal weighted S&P 500 confirm the cap weighted S&P 500, it kind of obviates that argument that people have been making about this being just a super concentrated market. So we're within a hair's breadth of seeing that happen. So something to watch as we head into the end of this month.

You know, we've talked also at length about how earnings higher equals stocks higher. And when you look at the S&P 500 forward 12 month earnings three months ago at the lows in April and early May for the earnings line, we were at about $274 a share for the S&P 500. As of today, we've made a new high for the year, we're at $284. So we've seen earnings recover 10 bucks over the last three months. So we had the kind of perfect thing for equity markets where we've seen the multiple move higher because we've had the multiple go over that same period of time from the lows that we saw back in April around 18 times up to a little more than 22 times for the PE multiple. But we've seen that happen on expanding earnings, which when we talked earlier this summer about what do we need to see to have the market have a good second half of the year, it really was that we needed to see corporate earnings come through to the upside because valuations were so extended. And we are seeing that as we come through earnings season and now guidance seems to be driving that forward 12 month number higher. So that's something, again, to continue to watch as we head through the next couple of weeks as we get through the rest of the teeth of earnings season. But right now, we don't see anything there that looks like it's going to derail the bull. There's been some reemergence of some of the meme stock stuff. I think that there's concern that we could start to be getting a bit frothy again.

George Mateyo [00:10:52] By the way, Steve, I'm sorry to interrupt you, but what's a meme stock? I mean, just for our listeners, I don't know, there's not an index, right? But there's a basket of these stocks that are trading, you know, I just pulled up this chart and some of these stock dropped north of 100% in just a matter of days. So what's a meme stock.

Stephen Hoedt [00:11:06] Yeah, it's like it's a stock, George, that becomes popular on message boards like Reddit and other places and all of a sudden a bunch of what I guess you would call quote unquote Wall Street bros would go in and start buying call options on it and it causes crazy price action. And they typically are lower priced securities and securities that are easily movable with retail flow. So I would tell you, look, I think it's something to pay attention to, but let me give you some perspective.

So, there are a couple of these indexes that the broker dealers have put together to track the price activity in this stuff. One of them is a non-profitable tech index from Goldman that I watch. In 2021 when this stuff really was at the peak of its froth, from then until the low in 2022, this index fell by almost 80%, okay? So it rose from an index level of a hundred to over 425 in the span of less than a year and then collapsed over a 18 month period all the way back to a hundred again, essentially. That's been going sideways for the last three plus years. It's up nicely this year and it's up off the lows. It's up 50% or almost 100% off the 2022 lows. It's up about 70% off of the lows that we saw here this year in April. But to give you some perspective, it's still down almost 60% from those peak levels that we saw in 2021.

Something to pay attention to, yes, when you get this kind of activity, it's clearly not a sign that the animal spirits are not there in the markets. But, you know, we look at a whole host of other indicators too, we look at a bunch of bull-bear sentiment indicators that come out from a couple of different survey firms, those are firmly entrenched in the middle of their ranges. Typically, those indicators only matter at extremes. The one that I would tell you that does give me a little bit of pause in terms of understanding that there is some complacency that's built into this market is the five-day moving average of the equity put call ratio, which remains down at levels that suggest complacency. So when you put that together with a little bit of this meme stock stuff, you do see that there's some froth that's building into this market here as we hit new highs and head deeper into the summer. And we've talked that maybe the market might be due for a little of a pullback or reset or whatever you wanna say, mark some time as we head into the fall because as we sit here today, this week actually marks the seasonal peak for the month of July, and July's the strongest month of the year in terms of market returns now, better than December even. So, I would tell you that as we head through August, typically you get follow through in August from July, but then September and October are notoriously difficult. And there's plenty of policy reasons to think that the market will go through some kind of a period of digestion as we head into the fall.

George Mateyo [00:14:32] No, you're so right to point that out, Steve. And it's not lost on me that we are kind of doing that that tipping point or that seasonal tipping point anyway, where things get a little less attractive based on historical trends. At the same time, you mentioned some of these policy issues, two of which that jumped in my mind, of course, are what might happen in Congress. There's still a chance, I guess, I don't know how big of a chance it is, but there's a chance that we see some type of government shutdown in September. That's something the market's probably not thinking too much about just yet. And then secondly, I think it would be a very interesting meeting for the Fed. You know, I looked this morning and just kind of was curious to see that the expectations for the Fed to do their thing this month are pretty much zero. I think there's about a 2% chance that the Fed will cut when they meet next week. But then again, if you look at September, it's more than a 50-50 chance that they cut. And I think there's going to be probably a lot of consternation around how the market is going to price that risk as we come to September.

Stephen Hoedt [00:15:24] George, you know, though, talking about memes and talking about the Fed, I have to say the biggest winner of the week this week was the Internet with Trump and Powell wearing the construction hats. I mean, I've seen so many screen grabs of that in the last 24 hours. It's just - it's just priceless.

George Mateyo [00:15:41] Yeah, well, it's not lost in me that, I mean, he's a former real estate mogul or I guess developer, I guess I should say, right? So he's got he's got the hard hat probably from past projects that he could just kind of pull out of the closet. So, yeah, it kind of curious to see that. Interestingly enough, I think it does kind of kind of raise the specter that maybe there's some risk that Powell might be removed, quote unquote, for a cause using air quotes there. But it remains to be seen, you know, actually how that plays out. Of course, at the same time, he said the president said that he doesn't intend to fire Powell. But, you as you pointed out, you see those images, you can't help but wonder what's behind the scenes.

Brian Pietrangelo [00:16:15] Steve, one final question for you as we talk about tariffs and trade bans, we don't typically talk about individual stocks and you do own Nvidia in one of the portfolios that is a pretty high-stature stock. It seems there was news that the trade ban on China was lifted for the Nvidia H20 AI chips. What are your thoughts on that?

Stephen Hoedt [00:16:34] Look, I think that AI and the chips are a negotiating tool that we have to be able to use with our trade partners and access to those. And it just seems that the reality is that there are enough workarounds that the Chinese have that prohibiting the sale of those chips is not necessarily going to stop them from developing anything. So why not use the chip? I think was the negotiating chip was the idea. So I think that at the margin, it's positive for U.S. technology stocks, but I don't think it's anything that the market got too crazy about.

Brian Pietrangelo [00:17:24] Great. Thank you, Steve. And finally, George, always look for your closing remarks on thoughts for investors as we head into the second half of the year.

George Mateyo [00:17:32] Sure, Brian. So, I think we were right to point out some of these policy, I don't know what you would call them tailwinds and headwinds and so forth that that really was kind of dominating the market narrative for the first half this year. It feels like there's some sliding ever so slightly, but really haven't gone away. So again, I would kind of caution our listeners not to get too bullish, but also not get too bearish either. And in a sense that there are some puts and takes on both sides of the coin as far as I see it. And so again, we'd probably just continue to recommend being balanced towards risk. When Steve talks about meme stocks, to me that really kind of thinks more, that to me strikes me more as momentum and probably speculation as opposed to pure investing. And our take is to have a long-term perspective and really invest in quality companies at reasonable prices. And I think that strategy usually plays out best over the long run.

Brian Pietrangelo [00:18:21] Well, thanks for the conversation today, George and Steve. 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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