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, September 18, 2026. I'm Brian Pietrangelo, and welcome to the podcast. Just yesterday I had the great experience of providing a market and economic update for a group in Northeast Ohio for charitable and endowment type organizations. We had about 150 organizations in the audience and as I viewed and met a lot of people there, it continued to strike me what a great opportunity it is for philanthropy. As we think about the wealth accumulation that we have here in the United States for many people, but not all, it's a great opportunity to begin thinking about how you might want to repurpose some of that wealth into the philanthropic organizations around your community. It's very exciting to think about how those dollars can be used to strengthen our community and us as human beings. So again, just a little reminder, what a great opportunity to think about it in your personal situation where those dollars can be best used. 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 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 two economic releases for you this week, pretty light, but we also had, number one, the Federal Open Market Committee meeting on Wednesday and the reaction to it in the markets, which we will discuss in depth during our call. And we also had the legendary Warren Buffett in his letter to investors talk about him stepping down as chairman of the board at Berkshire Hathaway. That news is somewhat anticipated based on his prior comments throughout the year and some changes in the organization, but ultimately it's very interesting and still a legend in the industry. We also had a little bit of market indigestion after the Fed meeting to raise rates, but then it seems to have rebounded on Thursday, so we'll talk with Steve about that update. So the first economic release was retail sales for the month of August, which were up at a month over month rate of 1.2%, which was pretty good as the July reading was negative. So we see a nice little bounce back in the consumer spending area of retail sales. Now a reminder that the increase of 1.2% is a nominal increase, which means it does include price increases in addition to volume increases. So overall, still net net pretty good in terms of the spending habits. We'll continue to watch this number on a month over month basis as we always do. And second, in the industrial production area, the report came out for the preliminary read for the month of August. Again, it's always a preliminary read followed by a one month revision. So this is the first time since March of 2026 that the number came in flat, 0.0% increase. Again, we've had some decent strength in this area for over about six months. And again, we're not going to overreact to one number because it does vacillate back and forth. But again, reporting for that has simply been pretty good for the remainder of this year, and we'll see what has happened as we go forward next. We'll continue to watch it in the same way we watch retail sales. With that, let's get right to Rajeev to have our conversation recap on what the Fed did this week and what the implications are for the markets and the economy. Rajeev?

Rajeev Sharma [00:03:47]

Yeah, the SOMC met this week and all odds were that the Fed was going to raise rates. There were to hike rates, 90% probably that they were going to do that. And they did exactly that. So the target range went up 25 basis points to 3.75 to 4%. And what happened in this meeting, it was a very hawkish meeting in the sense that the press conference said that they're not done yet. They're focused on inflation. Many investors thought that maybe they should have raised 50 basis points, but they didn't do that. They did 25 basis points. I think that was in line with the market expected. They did release their summer of economic projections. The dot plots actually pointed towards a more aggressive Fed that wants to raise rates. So you do have dot plots pointing to another rate hike this year. The real focus from the press conference and from the statement was that inflation needs to get to the Fed's 2% targeted goal. And until they get there, they are not going to be happy. So I think the Fed has done what they needed to do. That's what the market expected. But the press conference itself really was a little more hawkish and you saw yields really move higher in the front end. We had a bear flattening move where the front end moved higher than the long end of the Treasury curve. It had a lot to do with the fact that the summary of economic projections pointed towards inflation expectations being revised higher. And even though unemployment rates were slightly lower in their economic projections, I really think that the focus from the Fed right now is inflation. And the market's going to have to deal with every single inflation report that comes out to see what the Fed's going to do next. So if you look at the expectations from the market, they're expecting by the end of December to have another rate hike. But I really feel that every single data point is going to be important and the Fed's going to err on the side of data. So what happened with the market as soon as this happened, treasury yields went up, the dollar also rose, equity markets rolled over and credit spreads tightened actually after the FOMC release. So, the thought here is that we are on a rate hiking cycle. I don't feel that the Fed has generally done one rate move and then stop. They don't like to pause. They like to get on a rate hiking cycle or a rate cutting cycle. In this case, we're in a rate hiking cycle and I don't think the Fed is going to stop. At least that's typically what happens with the Fed. They don't like to pause. That being said, we did really get a lot of information from Fed Chair Warsh. He doesn't like forward guidance and he really said you have to look at the data and focus on data. But he did say this was the right move. And I think that's very important credibility wise for the Fed. The market viewed the move as a credible move by the Fed. If they didn't do anything, I think that would have put into question Fed credibility. Now, Fed Chair Walsh did not give a dot plot for himself, but there was a dot plot that was released. And that does show that we're going to be higher for longer. And I think the market is prepared for that. And the reason I think that is because the next day we had a complete reversal in the Treasury market. If the Treasury market felt that the Fed is behind the curve, we would have seen a continued sell off. We didn't see that. We saw Treasuries rally the next day. It was almost like we kind of recapped something that we had right after the FOMC meeting. So the market feels that the Fed is credible. They're doing what they need to do to bring inflation down. Every data point will be important. Kevin Walsh has shown his credibility. There were some reports out there that maybe because he didn't show a dot plot, he kind of allowed himself for some cover. But I don't really feel like that's exactly what his intention was. He has never believed in the dot plot. He's always believed in less forward guidance. So this is going to be a very interesting Fed regime right now. And I think that when you see other central banks around the globe, inflation is the number one priority. It's a global theme. And you're seeing other banks start to do the same thing. They've raised rates also. So having the Fed do this, it was not a surprise that they did it. But the forward guidance, the projections, economic projections really point more hawkishly in his press conference, a little more hawkish.

Brian Pietrangelo [00:08:32]

Rajeev, I thought it was good that it was a 12 to zero vote, right? It was unanimous. And that tells us something. What do you think?

Rajeev Sharma [00:08:38]

It was unanimous. And I think everybody's looking for dissenters. We had dissenters in the July FOMC meeting. This time around, it was all unanimous. I think what's going to be really important is the Fed minutes that come out in a few weeks. We'll see really if anybody is really pushing for maybe 50 basis points. But I think that it was very important to see that was a unanimous vote.

Brian Pietrangelo [00:08:59]

George, any thoughts from you?

George Mateyo [00:09:01]

Well, it was pretty convincing, as you pointed out, Brian, a 12-0 vote on expectations. There might have been some broad round of chairman along with that. So it's hard to read too much into that. But I think the bigger issues that Rajeev raised are spot on in the sense that this is probably a pretty big shift in terms of all thinking about what the Fed is likely to do going forward. I thought the comment that they said they were, quote, removing a dose of accommodation suggests, as you pointed out, Rajeev, that there's probably more cuts, I'm sorry, more hikes rather to come and more action from the Fed that suggests that maybe we are on the cusp of a tightening cycle as opposed to just a one shot cross the bow kind of move. And as you also know, the Fed really likes to do that. Not that they don't mind standing still, but they'd like to be either in a state of tightening or easing. And now it seems like we're clearly in a situation of tightening. The good news though, I guess, is that the economy seems to be able to take it in stride. We've already seen rates as we know. As we've talked about on these conversations and other places, Rates have been rising for quite some time in the past few weeks or so. And the stock markets, the risk assets in general have been sideways up. So I think they've taken it in stride to some extent. But going forward, I think there is a question as to what this means for portfolios. It probably suggests that volatility is going to remain when you have more uncertainty from the Fed. You still have a lot of uncertainty with respect to the Middle East, of course, and the ongoing conflicts in other places in the world. So I do think that's probably going to be an element as well. And I think the other thing I'd point out is that up until this point, as I mentioned, the economy has actually been able to withstand some of these pressures fairly well. The resiliency is just really remarkable. A lot of that, of course, is driven by AI and some other things as well. But overall, it does seem to me that maybe the overall tenor of the backdrop with respect to the Fed is changing. And we have to be prepared for more uncertainty and perhaps more volatility in the next few months ahead.

Brian Pietrangelo [00:11:00]

Speaking of that uncertainty in AI, George, we have some comments from various parts of on and off, risk, no risk. What's your thoughts from the CEO commentary that we've heard this week?

George Mateyo [00:11:09]

Well, it's not surprising and it is, I guess what is surprising in the sense that people are kind of lining up in different camps. And it is interesting right now when you have these moments, the bedfellows, as they say, become pretty interesting in the sense that who's kind of pairing up with who. I was struck by the fact, for example, that Bernie Sanders and Steve Bannon were on the same stage at the same time talking about the same issue. They seem to be aligned in the sense that they'd like to see some of the curtailment you talked about with respect to data centers take place. They'd like to see maybe a pause, if you will, or some type of moratorium in other places as well. That's quite interesting to me to see how two people historically that have been on pretty opposite sides of the spectrum, politically anyway, align themselves around this one issue. As we talked about, I kind of thought, frankly, that this would be an issue for the '28 elections, not so much the '26 elections, but here we are. And I suspect that, as we talked about last week, maybe it fades a little bit after the elections go away. I think the overall doomsday conversation that really dominated the airwaves in the last week or two, frankly, are a bit overblown. Truthfully, nobody really knows, but we've seen periods of time in the past where you have these major disruptions because of technology. And sometimes people get very concerned about things. And yes, sometimes the disruption that takes place is very profound, it's real. We saw that 120 years ago or maybe 200 years ago when you think about the Industrial Revolution back in the early 1800s, that really accomplished a lot of good, but it also came a lot of disruption in the labor market at that time. And similarly, we've seen other periods of time where you've seen some major disruptions from technology that creates a lot of concern. But ultimately, we've proven to be very resilient as a society and as an economy, and we've been able to kind of power through that and really enjoy the overall benefits of productivity. I think there probably still is some risk though, Steve, with respect to capital spending. Capital spending we've talked about as relates to AI has been really the dominant theme for the economy for much the last year or so. It's been an ongoing theme inside the stock market where the market, as you pointed out, probably divided between AI stocks and non-AI stocks. So I would guess I toss it over you, Steve, to get your thoughts. If we see a big slowdown in the AI buildout, does that portend something worrisome for the overall equity market in your view?

Steve Hoedt [00:13:29]

Well, George, it's been the key driver of the earnings explosion that we've had this year, period the end. And if that was to come off the boil in some significant way, I don't think there's any way that the equity market wouldn't be negatively impacted by it. So it's something that we're going to have to continue to watch. I don't particularly think that either the red team or the blue team wants to throw a monkey wrench into the economy per se. So I know that there's lots of talk among the political chattering classes about AI and data centers, but at the end of the day, I'm not really sure that there's going to be much that's going to happen simply because to take material action there would be a pretty significant negative drag on the economy right now, because it really doesn't seem, if you look at the rest of the economy, it seems to be that the economy is okay, but if you look this morning, you had factory output down in terms of industrial production. And that was an unexpected decline, right? So, I think you look at other things and you don't necessarily get a super sanguine picture of the economy X data centers. I mean, I think it's okay, but it's clearly not just completely humming along right now. And I think when you look at a couple of other points this week that And I think it's going to be very hard to see the Fed not continue this hiking cycle when you've got diesel prices at all time highs. And people don't understand or don't think about diesel because most people don't put diesel in their cars, right? They put gasoline. But literally everything that you see around you got delivered by a truck that has diesel going into it. And the fact that diesel prices are at all-time highs, it's going to ripple through the pricing system for the economy over the next three to six months. And I really don't see anything that's going to reverse that. So we're going to be dealing with these inflationary pressures. And honestly, the difficult thing for policymakers is the Fed can do all they want on that, but they're not going to be able to make diesel more available. What concerns me about the Fed's action is the Fed will continue to tighten if they follow the historical pattern until they break something. And they're going to break something because they can't fix the inflationary problem that they're trying to solve. So we'll see. I look at the bond market this morning. I see the 10-year yield back to 5% after the modest 7% or 8 basis point rally yesterday. I think we're looking at higher yields over the next three months heading into year-end. The 10-year is going to be above 5.

Brian Pietrangelo [00:16:30]

Steve, what does that mean for stocks and specifically maybe some of the sectors and how they differ?

Steve Hoedt [00:16:35]

Yeah, it's been interesting to watch this week because we've seen the financial sector start to take on some water. And I think that that's a valid move by the market to look at it. And when you look at some of the other areas that typically have exposure to higher rates in terms of longer duration. It's tech and it's biotech within healthcare that typically underperform in that environment. The difficult thing within tech right now is to figure out if it's going to be the same way that it usually is this time or because of the AI stuff, if tech is going to hold up better. But at the end of the day, we're continuing to watch for the impacts because there is rotation to be done or the market will rotate. And we're already seeing that with financials starting to take on some water here after being reasonably okay for the first seven or eight months of the year. The backup in rates is starting to bite.

Brian Pietrangelo [00:17:39]

And Steve, any thoughts real quick on the tech rebound in spite of that yesterday?

Steve Hoedt [00:17:44]

Again, it goes to what people think is kind of a durable theme. I would say that yesterday was more of a thematic day than anything else because You saw tech do well, you saw energy do well. So you saw these areas that have had a fairly consistent bid underneath them. Garner flows and I will say that we're to the point of the year too where you're going to start to probably see some performance chasing and things that have worked. And I think that as we head into the back end of the year, as long as the tech stuff has had a good year, you're going to continue to see that stuff garner flows. I think it's been really interesting to watch the way the semiconductor stocks have been performing because they've recovered, but they haven't really ripped higher, but they also haven't rolled over and died yet. So to me, that shows that we're kind of doing this sideways trading action, kind of marking time and maybe for lack of a better way of putting it, kind of growing into some of the move that we had earlier this year, that's kind of what we laid out as the best case scenario for what could happen with semis would be that it would just go sideways after having that multi-100% move in many of these names instead of just rolling back over. So, I think we're kind of getting that price action now.

Brian Pietrangelo [00:19:05]

Thanks, Steve. Final question for you, George. I know we've talked about it in the past, but we continue to think about the emphasis on real assets exposure with our audience. So share some of your thoughts on that area.

George Mateyo [00:19:16]

So Brian, for all the headlines that Steve mentioned, it does suggest that rates are going to be higher for longer, additional price pressures are going to be more persistent, and maybe as a way to kind of capture some additional exposure towards those type of things beyond traditional things like stocks and bonds, which are really important building blocks for any portfolio, real assets such as commodities or even commodity linked equities, which is a big part of Steve's strategy, those things can really play a meaningful role in diversifying a portfolio. And we've been talking about it for quite some time. We have certain tools that we've used and built to try and implement those where appropriate. It is a very volatile sector though, and there is probably some thought that As we said before, the cure for higher prices is not the Fed necessarily, but it's higher prices. I mean, at some point, prices rise so high that they choke off demand and they ultimately do fall. So there is some volatility associated with those tools, those instruments. But for a fully diversified portfolio, real assets can play a meaningful role to actually achieve overall diversification and provide maybe some immunization and some protection from volatility associated with higher inflation, as we've talked about in the last 20 minutes or so.

Brian Pietrangelo [00:20:27]

Well thanks for the conversation today George, Steve, and Rajeev, we appreciate your insights. And again, another program note this week for our upcoming National Client Call on September 29th. That's just a few weeks away, and we will be having a national call with George Mateo, along with Rajeev Sharma, and a special guest, Libby Cantrill, from PIMCO as a Managing Director of Public Policy. We will be discussing the countdown to the midterm elections politics policy in your portfolio, skewing more towards what it might mean for the markets and the economy rather than what it might mean for the political arena. Again, Tuesday, September 29th at 3 P.m. Eastern. If you need an invitation, please reach out to your KeyBank representative. Well thanks to our listeners for joining us today and 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 in the next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:21:37]

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