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We gather data and information from specialized sources and financial databases including but not limited to Bloomberg Finance L.P., Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange (CBOE) Volatility Index (VIX), Dow Jones / Dow Jones Newsplus, FactSet, Federal Reserve and corresponding 12 district banks / Federal Open Market Committee (FOMC), ICE BofA (Bank of America) MOVE Index, Morningstar / Morningstar.com, Standard & Poor’s and Wall Street Journal / WSJ.com.
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The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA).
Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.
This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy.
KeyBank, nor its subsidiaries or affiliates, represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose or any investor and it should not be used as a basis for investment or tax planning decisions. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal or financial advice.
The summaries, prices, quotes and/or statistics contained herein have been obtained from sources believed to be reliable but are not necessarily complete and cannot be guaranteed. They are provided for informational purposes only and are not intended to replace any confirmations or statements. Past performance does not guarantee future results.
Brokerage and certain investment advisory services are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor. Insurance products are offered through KeyCorp Insurance Agency USA, Inc. (KIA) and underwritten by third party insurance carriers not affiliated with KIS. KIS and KIA are affiliates under the common control of KeyCorp. To learn more about KIS’s investment business, as well as our relationship with you, please review our KIS Disclosure page. Check the background of KIS on FINRA's BrokerCheck.
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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, August 28th, 2026. I'm Brian Peterangelo, and welcome to the podcast. Well, thanks for rejoining us. As you may have noticed, we were off last Friday, so we're going to catch you up on a variety of information that has happened over the last two weeks. Interestingly enough, just this past week, an icon in the music industry, Dolly Parton, passed away. And if you've never heard or read her story, please take time to do so as she was just an absolute wonderful person and also a music icon. 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 Cindy Honcharenko, Director of Fixed Income Portfolio Management. 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 to go back two weeks to bring you up to speed because again, we were off last week for the podcast and the only real material item from last week's information was the Federal Open Market Committee meeting minutes from their meeting in July. And those minutes didn't reveal anything surprising where there was still mixed information around those policymakers. three of which who had dissented on the decision were favoring an interest rate hike. And again, that conversation was played out in the minutes. Other than that, we think it's pretty different right now in terms of the next speech, what we'll talk about later today with Kevin Warsh at Jackson Hole. So now let's move to this week's economic release information where we've got four key updates for you, beginning first with the weekly initial unemployment claims that came in for the week ending August 22nd at nearly 200,000. Again, that number has been extraordinarily consistent and is a favorable signal that right now under that economic indicator, the job market remains very healthy. And second, we received the second estimate for the second quarter of 2026 GDP. And that number came in at 1.5% for the quarter, which was the same as the first estimate. Within that number, consumer spending remained strong and the number that is defined as real final sales to private domestic purchasers came in at 4.2%, which was strong in the quarter. And again, that shows us that this is again a resilient economy. And third, we received the inflation measure known as personal consumption expenditures measure of inflation known as PCE for the month of July. And on an annualized basis, the overall number came in at 3.7%, still significantly high. And when we exclude food and energy, the PCE price index increased 3.3% from one year ago. So that continues to remain well above the Federal Reserve's 2% target, which we will continue to talk about from the Fed. And fifth, we had Fed Chair Kevin Warsh's speech at the Kansas City Jackson Hole Economic Symposium, which ended just a few minutes ago, and we'll have a good conversation on our read on what those comments were and what it means for the markets and the economy. In addition to those economic readings, we also had some volatility in the bond market this week with overall yields and Scott Besson's desire to purchase some bonds. In addition, we had some really important earnings out of NVIDIA, and we'll talk about that with Steve. But before we get to those items, we'll go right to Cindy Honcharenko to give us an update on Kevin Warsh's speech, what it might have said, and what it might mean for the markets and the economy. Cindy?
Cynthia Honcharenko [00:04:14]
I think the biggest takeaway from Kevin Warsh's first Jackson Hole speech as Fed chair is that this was less about telling us what the Fed's going to do in September and much more about telling us how he intends to think about monetary policy going forward. He telegraphed that right at the beginning with a great line. After outlining what he planned to discuss, he said, you can call it an outline, you can call it a trail map, just don't call it forward guidance. And that really became one of the central themes of the speech. Worsch believes traditional forward guidance has essentially overstated its welcome. He argued that too much communication can create what he called a hall of mirrors problem, where markets are looking to the Fed for direction while the Fed is simultaneously looking at market prices for information. Instead, he wants markets doing more independent price discovery and the Fed retaining more flexibility to respond to the actual economic environment. His phrase for that was a quieter Fed, one that's more purposeful in its communications and less focused on signaling the next policy decision. And that was his pretty strong economic assessment. Warsh said the economy appears to have strengthened. He sees the labor market as stable, consistent with full employment, business investment strong, corporate profits are growing, and AI investment could significantly increase productivity and potential growth. He described this moment as a hinge point in history. But when he turned to inflation, his tone became much more serious, and he reiterated that the 2% is a firm fixed target and said that the Fed's predominant focus right now should be on prices. His standard was very clear. We must be confident that underlying inflation is moving toward our objective. clearly and at sufficient speed. Otherwise, we have more work to do. I would say it's probably the most important policy message in the speech. Jackson Hole provides a lot more context around what we heard from Kevin Warsh on the July 29th press conference. During that press conference, he warned markets that they wanted forward guidance and a clear reaction function, and Warsh really wasn't willing to provide either of those. Today, he essentially explained why. He doesn't want to pre-commit the Fed to a path of rates. He doesn't believe the economy can be reduced to a mechanical reaction function where a particular data point automatically produces a particular policy response. So I view this speech as continuity rather than a change in direction from July. We also heard the same emphasis on the credibility of the 2% inflation target. And importantly, nothing today suggested that Warsh believes the Fed has finished the inflation fight. In fact, he went even further by saying the responsibility for 65 months of sustained elevated inflation sits squarely with the central bank. And that's a pretty powerful acknowledgement of accountability from a Fed chair. I thought the overlap with Kansas City Fed President Jeffrey Schmid was particularly interesting. Schmid said this week that inflation remains stubborn and sticky and question whether monetary policy is actually restrictive at today's three and a half to 3.75% Fed funds rate. He said, I don't know what we're restricting currently with that rate policy that we're at today. Worst didn't use exactly the same language, but he arrived at a very similar place. He noted that credit and loan markets are showing few signs of policy restraint and said he would be hard pressed to describe broad financial conditions as restrictive. So we're hearing an increasingly important question from within the Fed. If the economy's resilient, the labor market's effectively at full employment, financial conditions aren't particularly restrictive and inflation is still well above 2%, is the current policy rate actually doing enough? I think that question is going to become increasingly important heading into the September FOMC meeting. So what does this mean for markets? I'd resist interpreting this speech as an explicit signal that a September hike is coming. Warsh deliberately didn't give us that. But I also don't think that you can characterize this speech as dovish. He gave us an economy that looks fundamentally strong, labor market at full employment, financial conditions that don't appear particularly restrictive, and inflation that remains too high. That combination certainly keeps another rate increase on the table if the inflation data doesn't improve. And I think the initial mixed reaction in treasury yields actually makes some sense. Wirch didn't give the front end a specific September policy signal, but he also didn't give the bond market reassurance that the Fed has finished tightening. Longer term, his move away from forward guidance could also mean more market-driven price discovery and potentially more interest rate volatility because investors are going to have to react more directly to the incoming economic data rather than relying on Fed officials to tell them where policy is headed. And perhaps the best way to summarize his speech is actually the way that Warsh chose to end it. I stand here today committed to a discipline, not to a decision. To me, that's the essence of Warsh's message today. He gave us the framework, but he very deliberately did not give us the forecast.
George Mateyo [00:10:01]
Cindy, that's a really awesome summary. And I think you said a lot there that's really important for our listeners to take hold of. And the last thing you mentioned, I think, is really important as well, where we're not going to get decisions preempted from the Fed. They're not going to tell us what they're going to do. And in the past, not that they were that explicit all the time, but they gave us a pretty robust framework, as we call it, forward guidance, some kind of a sense of where their heads are with respect to monetary policy and interest rates. And markets got really hooked on that, like a better term. I think they really got conditioned to respond to that guidance and when you take it away, it creates a vacuum. And so, as you've been saying for quite some time, as we've argued also, changes are happening now with the best messenger, of course, we have a new Fed chair. There's changes in the message itself, which is pretty interesting that we're talking about a new Fed chair at the same thing. Maybe policy might be undergoing some changes as well. And more notably, it seems like how the message is being delivered. is also changing right in front of us too. So all those things together, as you said, Cindy, just creates a lot of volatility, I think, with respect to interest rates and where we're headed. The markets are digesting this in stride today, it seems like, and that's probably as best we can do in the absence of growth clarity. And because we're in a period of transition, I should say, market's going to need time to react to that and adjust to that over time. So I think it's fair to say that a lot of this, when we look at this probably two years from now or so, We'll probably have gotten somehow preconditioned or maybe reconditioned to think about what this all means. But for now, it probably creates a little uncertainty. But over the long period of time, I suspect that this is going to come out of the wash and be largely a lot of noise. I think the other question for us as investors, I think through Steve, is what's happening in the equity markets. Of course, there's been this momentous rise in earnings this year. A lot of it's been driven. of course, by AI and AI-related spending. We got a big report this week from a major company that's really fueling the AI trade. At the same time, we saw a former Fed official, a guy named Bill Dudley, who deserves a lot of respect. I think he was the former president of the New York Fed, which has an outsized vote on the FOMC. And he was pretty critical, actually, of what's happening in the AI sector, and more specifically, thinking that we actually might see some type of peak here coming down the pike in the not too distant future with respect to AI spending and what that might mean for the economy. And in his view, it is slightly negative. So more than slightly negative, pretty negative actually outright altogether. So I'll put that over you, Steve, in terms of how you're thinking about AI spending, how you're thinking about semiconductors, how you're thinking about earnings in general. love to get your thoughts on how you think the setup now is actually in front of us with respect to the equity market going forward.
Steve Hoedt [00:12:46]
Well, I'm going to riff on the Fed for two seconds before I jump in the AI situation, George. So my interpretation of this today is that this is hawkish. And when you look at the reaction of the two-year yield jumping from and a little over 420 yesterday to 432 right now. The high that we had in July this year was 437 and the high last year is 441. So we are within 10 basis points of seeing multi-year highs in the two year. That to me is unabashedly hawkish. Like the market's taking this and thinks that it's, I mean, the market's doing the Fed's job for it. It's tightening monetary policy in my view. So whether it's forward guidance or not, he's getting tighter monetary policy out of this. So at the end of the day, we'll see how the markets react. Equities are up 30, 40 basis points today. So the markets seem to be taken in stride. I think people felt that this was kind of likely going to be the outcome of the Jackson Hole confab this year, but clearly the short end is sending a message that things are going to get tighter. We saw the probability of a Fed hike jumped from 40% to over 50% for September, just simply on the reaction to the news. So this morning—
George Mateyo [00:14:23]
I'll cut you off for a second. If you're going to go down this path of talking about the Fed and rifting on the Fed, to use your term, should we talk a little bit about the long end of the curve? I mean, we've got this situation right now where the Fed, as you said, the market is trying to do the Fed's work at the short end by bringing rates up. At the same time, on the other side of, what is it, Constitutional Avenue, I think, where the Treasury sits, You've got the Treasury Secretary talking about bringing long yields down and actually taking over measures to do that. we
Steve Hoedt [00:14:52]
He's trying to. He's trying to, and that's worked so far. But I'll tell you, the dollars that they're talking about are incredibly small compared to the size of the long end of the yield curve. So we'll see how long it lasts. When you look at global long yields, pull up a chart of the Japanese 10-year, pull up a chart of the German tenure, pull up a chart of the US tenure. They're all going in the same direction, higher. It tells me that we're likely in an inflationary or non-disinflationary regime now compared to where we were a few years ago. So I think they can fight that all they want. And the reason why they're fighting it is because the interest payments for the US government start to get very large when you have higher yields than what we have today. So we'll see how successful that is. He's definitely brought the long end of the yield curve down by about 15 to 20 basis points with this manipulative activity over the last couple weeks. We'll see if it sticks. At the end of the day, the bond market's really big and it has more money than to play with and what they do currently. Although, you know, if the Fed starts to get involved buying the long end of the yield curve, that's a different question. So we'll have to see right now, there's no talk of that. I'm not saying that there is, but at the end of the day, the Fed's balance sheet is infinite if they choose to make it so. We'll have to see how it goes. When you look at the AI comments that you mentioned earlier from William Dudley, I think the thing that caught my attention this week was not only the earnings numbers that came out of Nvidia, which were fine, but the price action in semiconductor stocks continues to be a bit concerning. So we rallied back to a now slightly downward sloping 50-day moving average for the semiconductor index, the SOX. about two weeks ago, and we failed to take that out. And we are sitting below it today, even after the fundamental numbers from NVIDIA came out, which said that the AI spend should be just fine for the foreseeable future, George. So, you know, I think when I look at this, it starts to paint a picture of maybe the market moved too far too fast for some of these names. And we're going to see at best a period of time where semiconductor stocks and others that are part of this AI ecosystem need to mark some time in order for the underlying fundamentals of AI to maybe be revealed in more of a productivity enhancing way for customers and things like this. and then we'll see how things play out. But I mean, it's very clear to me that AI is here to stay. We're going to be talking about the benefits of this technology for years and years. But you can go back through history and find all kinds of things where we've had profound fundamental economic change that we've talked about for years and years. And yet the first or even in some instances, the second wave of companies that were involved in creating that ended up not being the beneficiaries of it. And in some instances had problems. And I would point to the price action in the CDS markets for some of these hyperscalers that are spending large amounts of money on this, and you can point to two of them in particular that are trading near junk levels, namely Oracle and Meta, that sends a kind of concerning picture in terms of the overall spend here. Like you've got to figure out a way to actually make money doing this in order for these companies to justify the literally trillions of dollars that they're talking about spending on infrastructure for it. We just aren't quite there yet. And the market's kind of starting to show some skepticism about it, as it well should, quite honestly.
George Mateyo [00:19:20]
Well, we've been arguing, I think, now for the better part of a year that the switch flipped around this time last year, Steve, when many of these big companies that we talked about funding that AI spend have kind of flipped from using their cash flow, right, the amount of cash that their business generates effectively, to use that to spend as aggressively they have been, and instead they've been more reliant on debt and other, they've actually issued equity too. So I think it's kind of fair to say that in the last 12 months or so, We've been signaling that the market, I think now has kind of come around in this view that the AI trade itself has become more discerning, right? It's not just one-stop shop. Not all boats are rising equally at the same time in the same way. So I do think that there's probably some nuance there. And one thing that we've also been emphasizing is that probably portfolios should be tilted slightly more towards AI adopters versus the pure enablers. And you can categorize that in many different ways, but I think it is fair to say that if we do think that long-term benefits of AI will eventually accrue, either probably accrue to those companies that use AI versus the companies that are just building it, for lack of a better term.
Steve Hoedt [00:20:26]
Totally agree, George. And I think that the market is really looking at what's happening in the balance sheets of some of these formerly pristine technology companies as they lever up to do this. not that everybody like you and I that went through the bubble in 2000 is permanently scarred, but start to look at some of the parallels between things that were happening with global crossing and others that just put all kinds of leverage on in order to be able to build out the infrastructure. And look, these. These hyperscalers are real companies. They're not necessarily going to go down 95 or 100% if this doesn't become economically super viable for them. But at the end of the day, that's what when you see the CDS expanding and you see the market saying, hey, maybe we should think about this before we raise another trillion or two of debt in order to fund it. I think that there it's it's a it's caution that is is well warranted.
Brian Pietrangelo [00:21:32]
Steve, one final question before we end the podcast is to tie that cautionary tale to another concept with Nvidia and or other companies lending to their customers and talk a little bit about that for our listeners to help them understand.
Steve Hoedt [00:21:47]
Yeah. You know, when you see vendor financing, It starts to create a circular issue, and what kind of jumped to my attention. on this over the last month or so is, and the parallels back to the bubble are interesting because when the financing becomes the story instead of the actual technology, that's when market participants need to start to pay more attention. Because what we've seen over the last few months is not people talking about, oh, how great the the technology is anymore. We hear people talking about, well, Blackstone and all these other people are getting together to backstop some stuff from Nvidia and others to be able to fund the projects. And the funding mechanisms have now become the story. That to me, again, it just says, hey, we're not early in this cycle anymore when we're talking about financing and we need to pay attention, whether it's the vendor financing coming directly from Nvidia or whether it's the backstopping of multiple other types of entities in the markets that are providing funding for this. When the funding is the story, start to pay attention.
Brian Pietrangelo [00:23:09]
Well, thank you for the conversation today, George, Steve, and Cindy. 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.
Disclosure [00:23:43]
We gather data and information from specialized sources and financial databases including but not limited to Bloomberg Finance L.P., Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange (CBOE) Volatility Index (VIX), Dow Jones / Dow Jones Newsplus, FactSet, Federal Reserve and corresponding 12 district banks / Federal Open Market Committee (FOMC), ICE BofA (Bank of America) MOVE Index, Morningstar / Morningstar.com, Standard & Poor’s and Wall Street Journal / WSJ.com.
Key Wealth, Key Private Client, Key Private Bank, Key Family Wealth, and KeyBank Institutional Advisors are brand names used by KeyBank National Association (KeyBank). Key Wealth and Key Private Client are also brand names used by Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor.
The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA).
Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual author(s), and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.
This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy.
KeyBank, nor its subsidiaries or affiliates, represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose or any investor and it should not be used as a basis for investment or tax planning decisions. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal or financial advice.
The summaries, prices, quotes and/or statistics contained herein have been obtained from sources believed to be reliable but are not necessarily complete and cannot be guaranteed. They are provided for informational purposes only and are not intended to replace any confirmations or statements. Past performance does not guarantee future results.
Brokerage and certain investment advisory services are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC-registered investment advisor. Insurance products are offered through KeyCorp Insurance Agency USA, Inc. (KIA) and underwritten by third party insurance carriers not affiliated with KIS. KIS and KIA are affiliates under the common control of KeyCorp. To learn more about KIS’s investment business, as well as our relationship with you, please review our KIS Disclosure page. Check the background of KIS on FINRA's BrokerCheck.
Non-Deposit products are:
NOT FDIC INSURED • NOT BANK GUARANTEED • MAY LOSE VALUE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY