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, May 1st, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We have a trifecta of interesting information going on today and tomorrow. If you are paying attention, it is usually tomorrow, the Berkshire Hathaway annual meeting, which is very interesting and always a good read, in addition to the fact that Warren Buffett will no longer be at the helm as he has transitioned the CEO position to Greg Abel. We also have National Investing Day being celebrated today on Friday, May 1st, which was created by Charles Schwab and the corporation, to basically take a look at financial literacy and the value of understanding as investors for long-term wealth accumulation. What a great word to celebrate and also put a focus on how we can help individuals across America. And finally is the Kentucky Derby tomorrow. It starts with the Oaks today, but the Derby is tomorrow, so it's a most exciting time. It's often talked about as the fastest 2 minutes in sports or the most exciting 2 minutes in sports. So it's a great opportunity to take in the horse racing mecca of the Kentucky Derby. So without further ado, I'm so happy to introduce our panel of investing experts, some might say they're thoroughbreds in their own right of investing. 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've got three key economic releases for you for the week, starting first with the weekly initial unemployment claims, which we regularly report on. For the week of April 25th ending, the claims actually went down considerably to 189,000. So this is a number that is below the 200,000 mark. That's a good signal. It has been very stable for a long period of time, been in a range of about 200,000 to 260,000 for about two years. So having this number go down this particular week, again, is a good sign they continue to remain stable. And second, we got the first or advance estimate for the first quarter of 2026 GDP or gross domestic product, and that came in on a quarterly rate annualized to 2%, 2.0% for the first quarter of 2026. This was above Q4, so a sign in the right direction and is basically being supported by the overall consumer spending and government spending. In third, we got the inflation read known as the personal consumption expenditures measure of inflation for the month of March, and it came in at an annualized rate of 3.5%. Now this was a spike, it was expected, because this is the first month in which it included the Iran conflict and the increase in energy costs from the Strait of Hormuz oil situation. Excluding food and energy, it was up on a 3.2% from one year ago, which did consider again some of the downstream effects of inflation outside of oil and energy. So we will continue to watch these as it has implications for the Federal Reserve. And speaking of the Federal Reserve, the Federal Open Market Committee had its meeting this week on Wednesday with a nice press conference from Jay Powell. So we'll talk with our panel on that particular topic because it's pretty relevant. And we'll also get Steve's take and George's take on what's going on in Iran and oil, and also Steve's take with Q1 earnings, some of which the Magnificent Seven reported this week. So with that, let's start our conversation by turning to Rajeev to get you a recap on the Federal Open Market Committee meeting and some interesting news about Jay Powell and thoughts for the future. Rajeev?

Rajeev Sharma [00:04:13]

The Fed really held the rate steady at 3.5% to 3.75%, and that was not really a surprise for the markets. I think the markets really felt that this was going to be a paused meeting. In fact, the market expectations for the Fed really have come down quite a bit. You know, many, many expectations before this meeting were pointing to no rate hikes at all for 2026. So this is the third consecutive cause by the Fed. The Fed continues to operate in some levels of uncertainty. You have inflation that is reaccelerating due to a 20 plus percent hike in energy prices tied to the Iran war. Labor markets are uneven, they're cooling. But overall, the inflation part of the Fed's dual mandate has stalled and is not moving towards their 2% goal. So there really is no urgency, if you will, for the Fed to really accurate now. So I think all of that messaging was consistent with this Fed meeting.

Brian Pietrangelo [00:05:14]

A great summary on that, Rajeev. What was interesting to me is there were four dissents and opinion on the statement. You want to explain that for our listeners, what the dissents mean and why they dissented?

Rajeev Sharma [00:05:26]

It's a great question, Brian, because the big story was not that the Fed paused. The big story was those dissents. There's more internal division than what's expected by the markets. You had four dissents. This is the first time since October of 1992, and that's a big deal. This split the committee. So on one hand, you have Stephen Miran pushing for a 25 basis point rate cut. He has done that consistently in the last several meetings. But then you also have Beth Hammack, Neil Kashkari, Lorie Logan. They're opposing to the inclusion of easing bias in the statement. So what that means is you've got three other members in the Fed that really don't think we should be easing at all or cutting rates right now at all. And even though the Fed didn't do anything for rates at this meeting, the level of dissent shows a very divided Fed at a moment in time where there are risks of rising inflation, geopolitical uncertainty, This is going to make Kevin Warsh's job a lot more harder going forward because he is going to have to, you know, rally the troops, if you will, and trying to get his mandate of, you know, let's let's do a rate cutting. Let's do a rate cutting cycle, continue with the rate cutting cycle. If you have more and more dissent in the Fed, it's going to be more and more difficult to to really get consensus on rate cuts.

Brian Pietrangelo [00:06:50]

Absolutely. So thinking about this big news, (Kevin) Warsh did pass through the Senate Banking Committee on the way to the full Senate. Usually everyone is now at this point in time, there will be full confirmation, which means as of May 15th, he will take over as the new chair from Jay Powell. But also probably the most interesting fireworks from the press conference in the FOMC meeting this Wednesday were Jay Powell's remarks that he's going to stay on as governor. You want to talk about that, what it means for the Fed, the committee, and what it means overall?

Rajeev Sharma [00:07:20]

I think Fed Chair Powell, in his last press conference as Fed Chair, I think that that was really, there were a lot of fireworks. You know, he used it as a platform to forcefully defend the Fed's independence. Fed Chair Powell warned that political attacks have battered the institution and said he will remain on board, on the Board of Governors after his term. as chair expires on May 15th. Now, this is a very rare move. Many have thought about past Fed chairs. They generally ride off into the sunset when they're done with their Fed chairmanship, and they could write books or whatever they want to do after that. But Fed Chair Powell is really sticking to staying on in the Fed, staying on as a Fed governor. This will add some level of continuity to the Fed, but the transition for Kevin Warsh might become a little more challenging Fed Chair Powell has a lot of goodwill within the Fed. And I think having him on board will defend against some of these thoughts that it's not going to just be, OK, the White House wants rate cuts, and it's just going to go through with that. Again, as I mentioned, you need consensus in the Fed to make those type of rate cut decisions. Having Fed Chair Powell remain on the board, remain as a governor, I think adds continuity, but also makes Kevin Warsh's job a little more difficult. And that's why I feel that this pause that we had was more of a hawkish pause because the markets, you know, realized that, okay, Fed Chair Powell’s gonna remain and that too indefinitely. So what he's trying to do is stay on until he really feels that there's no challenge to the Fed's independence. All the legal battles from the White House and the Fed are done. Who knows when that's going to be. So I think this is going to be very interesting going forward.

Brian Pietrangelo [00:09:10]

Great. Last question for you, Rajeev, and then we'll get George's comments on the recap of the FOMC meeting as well. What does it mean for rate cuts or maybe rate hikes for the remainder of the year? And what should investors think about all of this information and how should they react?

Rajeev Sharma [00:09:25]

So, you know, we started the year off, Brian, with a market that was really convinced that we are in a rate cutting cycle. We'll have five to six rate cuts this year. That quickly changed. We went to, okay, the Fed's latest dot plots pointed to one rate cut for 2026. The market continued to gravitate towards two rate cuts for 2026, started pushing back their expectations to the second-half of the year. I think those expectations have changed considerably as days go on. When we heard that The DOJ was going to drop their lawsuit against Fed Chair Powell. Expectations started rising again that, okay, we're going to have Kevin Warsh quickly nominated. He'll quickly become the Fed chair. We'll start seeing rate cuts. The market started gravitating towards one rate cut for 2026. Again, I think that's coming under question as we talked about with Fed Chair Powell remaining on the board. So right now, I think the market's really thinking about there's no urgency for rate cuts, most likely no rate cuts for 2026. There is growing, there's growing expectations that perhaps there'll be a rate hike, but rate hikes really are going to have a lot to do with how long this war goes on and the how long oil prices remain elevated and how far away from the disinflationary trend we start moving. You know, the Fed wants 2% inflation. If we don't get it, I don't see how the Fed can cut rates. If inflation starts getting stubbornly sticky, you start seeing those expectations of a rate hike. I think for our listeners, I believe that this year is going to be very tough for having any rate cuts at all.

Brian Pietrangelo [00:11:11]

George, anything to add from your perspective?

George Mateyo [00:11:17]

I don't know if dissents are a bad thing necessarily. I think it's probably appropriate that the discussion would be pretty Vigorous, I guess, is maybe a word I use because I think we have such tremendous uncertainty. So I think a little bit of discourse is probably not a bad thing. And I wouldn't do the Fed as being fractured. I think they're probably just a little bit unsure about really where things might play out from here. So I think some discourse and some debate is probably healthy as opposed to trying to get everybody to kind of conform with one central tendency point of view. So I think that's probably how I would characterize it. The market's going to have to wrestle with that, though, because the market is somewhat preconditioned now to expect the Fed to tell them what they're going to do before they do it. And that guidance, as we've talked about, might be less of a factor going forward. But I think it is fair to say that for now anyway, it seems like none and done might be the operative phrase where no cuts this year probably is the baseline for now, but we'll see. I mean, there's a lot of things to go either direction going forward. And I think probably the market took the news in stride about Powell's decision to stay on it for a little longer as maybe a victory for Fed independence, in the sense there were some concerns a year ago and even at the beginning of this year that the overall independent nature of the Federal Reserve might come into question. I personally think that central banks being independent is a good thing for the economy on a long-term basis. So the fact that the chair, the outgoing chair, or Jay Powell more specifically, is opting to try and stick around, does kind of wreak a little bit of the fact that maybe he's getting to the political ring maybe a bit too much for some people's taste, but I think that it is fair to say that maybe the notion that Fed independence is alive and well is probably a good thing and maybe somewhat calming for markets overall. But I think the bigger story that we've seen this week has to do with the, another, I shouldn't say the bigger, another big story rather, has to do with the overall narrative around the economy. And we've seen continued strength there too. We've seen GDP, which is somewhat backward looking, come in pretty much better than expected. There was some pluses and minuses. The trade numbers were pretty soft overall because imports rose so much. But consumer spending was a bit better expected. And what really, I think, kind of captivated the market's attention was just a big build out of capital spending as relates to AI. That kind of bleeds in earnings a little bit, which we'll talk to Steve in a second about that. The other thing I would caveat, though, with respect to GDP numbers, though, is that that's largely before the war broke out. So I think that you'd have to kind of put a before and after dividing line between that. And of course, we're just now in the beginning phase of getting real readout in terms of what the impact might be on the economy from the war. In other words, the consumer spending number talks about being better than expected, might see some softness. I wouldn't be surprised with prices at the pump here in Ohio, hovering around $5 a gallon. That's going to weigh on consumers a little bit. But for now, some of the near-term numbers that we look at, like jobless claims you've often talked about, Brian, were really quite low this past week. Wages were also a little bit higher than expected. So I think we're in a position right now where the consumer, knock on wood, cross your fingers, is still in a pretty good place. And maybe the other thing we have to think about in this environment going forward is in a period now of guns and butter, which is what we saw probably in the '60s, and most people are probably too young to recognize that, myself included, so I'm just looking at history books here. But that was a pretty interesting time where we saw inflation a bit higher than expected, but really what took hold essentially was a really strong capital spending environment, a lot of support from the fiscal side as well, so tax cuts and so forth. And that provided a lot of impetus for just a pretty good environment overall for commodities and stocks, maybe not so much bonds, but it was a pretty ripe environment where the economy was really humming along at a pretty brisk pace. As I said, the central banks were pretty accommodative, so we had a pretty interesting setup from that perspective. And then the fiscal side, again, the government itself was actually in a period of time where they were expanding domestic programs, and of course, also involved in a bit of a skirmish in Vietnam, to put it mildly, and that provided a lot of oomph for the economy as well. That's one thing that I've started thinking about more recently is that we have this period of time now where guns and butter are back. The other thing I would point out this time, though, that's slightly different is that it's not just pure guns. And Steve, I'll pull you into this conversation now because a lot of the spending right now is being devoted towards AI, artificial intelligence. And we saw, of course, some what I consider just extraordinary gains and developments in terms of earnings this week. I'm not sure if you'd characterize the same thing, but it's really been remarkable to just see how strong earnings have been this year on the face of some of these shocks we've talked about, such as the war and other things. So Steve, what's your assessment of earnings and kind of where we go from here?

Steve Hoedt [00:16:20]

Yeah, I mean, the numbers have been really, really good. There's no other way to characterize it. I think I mentioned on an internal call earlier in the week that if numbers had continued to come in at the pace that they had been up to that point that we were staring at a probably a 20% year over year first quarter. And then we saw numbers, especially out of Alphabet, which were just fantastic. And, you know, we saw good numbers from the most of the other mag seven names that reported this week absent for Meta, which kind of disappointed the street. But I mean, it's very clear that for these companies that offer cloud services, that they are definitely seeing a huge tailwind from AI spend and AI adoption, in fact, because that's what you see when you're talking about cloud services. It's AI adoption by clients. It's not just the spend that the cloud companies themselves are having to make for semiconductors and and server boxes and data centers and all that good stuff. So, I think that when you look at the earnings numbers that people had for this year, they were low double digits. And typically, you see those numbers decline as you go through the first quarter, and they have not declined this year, George.

George Mateyo [00:17:51]

What's the backdrop, Steve, as we think about a year forward, if we can? I mean, I know we there's some problems. I guess there could be some parallels if we look too far ahead. But if you think about just how much burns growth has really been concentrated in some of these companies and particularly things like semiconductors, which are still, as I would see it, somewhat of a cyclical industry, right, kind of subject to booms and busts. Is there a concern as you think about next year, maybe, Steve, that maybe earnings growth will come down quite a bit or maybe are we just overdoing it or is this something that's really sustainable that has a year or two more left in the tank?

Steve Hoedt [00:18:31]

Well, I mean, I think that if you go back and you start to think about the parallels to the early 2000s, The real question comes when we think about what's real and what's not with these companies, right? Because there was a tremendous amount of double ordering back then. And I think that we saw all kinds of mayhem when the bubble finally did pop. This, to me, feels a bit more real and grounded. I'm sure there's probably some double ordering somewhere in the supply chain. But as of right now, it feels like the build out of these data centers to support this AI adoption is likely going to continue to move forward a pace. Where are we at a year from now? Probably in a similar place where we're at today. Although I would tell you that we're dealing with something where there's constant innovation, right? So, two years ago, basically people thought that Nvidia was the only way to play this in semiconductors. And then over the last 12 to 18 months, people figured out, okay, well, Nvidia plus Broadcom, because custom silicon is going to be a way to play it. And now this last week, we saw Qualcomm, another semiconductor name, throw their name in as somebody who could be providing custom silicon. And my point about this is, that we don't know a year from now, how many of these or which one of these is going to be the new thing or the big thing, right? There's just a tremendous amount of innovation going on. And I think investors are just going to have to pay attention because you could be an investor in Nvidia today and 12 or 18 months from now, they could be displaced by some custom silicon solution. And we don't even know what it is today. And I'm not positing that that's going to happen. I'm just saying that we're in an environment where things are moving really fast and you have to pay a lot of attention to what's going on with this. We spend probably an inordinate amount of time on it here in our research team, but I would tell you that I think this this is is here to stay is a theme for at least for the next two or three years, because this this infrastructure is not going to get built in a day. These data centers are huge. You drove past one in southern Ohio this week. I have one going up six miles down the road here. Like these facilities are gigantic and they take a little while to get built when they do start building them. And, you know, I think we're just going to we're going to be watching this. in awe probably for the foreseeable future here for two, three years. And it's going to drive numbers for these tech companies, no doubt.

Brian Pietrangelo [00:21:30]

George, let's get the final question for you in this week's podcast. For the last seven weeks, we've put Iran up front and getting your commentary on it. Dare I say, things were calm enough relatively that we could put it on the last part of the podcast, given other items that were more important this particular week. So George, what are your thoughts on updates on Iran and what's going on there?

George Mateyo [00:21:53]

Well, I wouldn't know if they're positive enough to really mirror the fact that other things have taken some airtime Iran. But I think things have been more in the status quo category more recently. And I think there's been some pockets of escalation, some pockets of de-escalation. So to me, it feels like it's been kind of a push this week in terms of the overall impact. But that doesn't mean it's gone away. And the longer this conflict, this war persists, the risk that literally dents the economy because of elevated energy prices and so forth is real. And I alluded to earlier, when we see gas at some pumps, five plus dollars a gallon, at some point, that is going to creep into demand destruction, meaning it's going to cause businesses and consumers to slow down usage of fuel, for example. And that's going to cause the economy to slow. That doesn't happen quickly, I would think. I mean, there is some reaction function. There's some time for that to actually take hold. But if we're still sitting here a month now and we start talking about Memorial Day, I guess the holiday driving season is typically associated with Memorial Day. And if that kind of causes a significant retrenchment, perhaps then we'll have to talk about a bigger slowdown in the economy. And as I mentioned earlier, we have to bookend the recent quarter and first quarter GDP report with the fact that that was, as I said earlier, somewhat pre-war, if you will, we didn't really see much of an impact there. What's striking, and as Steve mentioned, this dynamic with AI is happening at the same time. So to some extent, those two might be offsetting each other. It's hard to say for sure. And it's not lost to me that AI is also going to be a big consumer of energy, and utility prices are kind of a direct output of that. And I think we're probably in a position right now where it's kind of an elongated period of stalemate, which needs probably some resolution at some point. But again, I think the bigger question for the market has to do with some of this AI spending. I don't think that the midterms are going to be much of a factor for the market. That's another thing people are asking about. But I think the overall situation with Iran right now is not great, but it's not terribly either. And I think some of the shock has probably worn off, but the impacts are still there. We just have to wait to kind of see if they take hold and how they play out.

Brian Pietrangelo [00:24:15]

thank you for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. 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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