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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, December 5th, 2025. I'm Brian Pietrangelo, and welcome to the podcast. We'd like to welcome you back. After a Thanksgiving break last week, we were off for the podcast, and I assume that you were able to spend time with family and friends like we were. So again, glad to have you back with us this week. In addition, as a program note, earlier this week on Wednesday, December 3rd, we had our national client call where we talked about our 2026 outlook for the economy and the markets. So if you're interested in hearing the recording and seeing the deck from that call, please reach out to your financial advisor or relationship manager to get the links for that information. We'll also be giving a recap for that in our podcast today during our final session. 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. Stephen Hoedt, Head of Equities, and Rajeev Sharma had a fixed income. As a reminder, a lot of great content is available on key.com slash wealth insights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series, which addresses 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 three key updates for you in terms of the economic releases for the past week and some commentary on that, and we will begin with that here shortly. First up, we have data on the employment market and the labor market, beginning first with the initial unemployment claims report that came out on Thursday. The initial claims for November 29th week ending were 191,000, which was significantly below the average that we have been seeing for some time now and may be related somewhat to seasonal hiring, which again reduces the initial unemployment claims that have been filed. That also being the case, it's been below 225,000 for the last three weeks of reporting, so we'll continue to take this as favorable news as this data point within the employment market. On the other hand, we were supposed to get the employment situation report for November here on Friday, the 5th of December, that covered November's data, but it was delayed and continues to be delayed from the government shutdown and will not be published until December 16th. As a result, we'd look at some alternate data that we don't normally cover and try to get a read on whether that has implications for the employment situation report that would be delayed. And one of those reports is the ADP National Private Payroll Report, which showed that there was a loss or decline of 32,000 jobs in the private sector for the month of November. And second, this week we got both sides of the Institute for Supply and Management's PMI reports, one manufacturing and one services. On the manufacturing side, their report continues to show contraction in the manufacturing side of the economy, not only for the 9th consecutive months, but rolling on to roughly a five-year period where the manufacturing industry has been in contraction. However, opposite from that, on the services side of the economy, it has been expanding in the month of November and has basically also been an expansion for about 5 years. So a completely different side of the economy, and we'll continue to look at that data to report it for you. And third, we're getting information real time on PCE inflation for the month of September. It's coming out right as we're recording this podcast here on Friday morning. So we'll talk about that within our sections of the podcast. But that being the case, remember, PCE, or personal consumption expenditures inflation, is the preferred measure for the Fed. Now, that being said, given the government shutdown that we had, this information is also delayed, so we'll only be getting the PCE inflation number for the month of September, which means it's a little bit stale, but it's still very important because it's the last official read before we go into the Federal Open Market Committee meeting next week. And speaking of the Fed, as our last comment, they will meet on Tuesday and Wednesday of next week for the last meeting of 2025. And we'll talk with Rajeev and the team about the implications of the data for that meeting and where we're headed as the probabilities of a rate cut are pretty high, and then talk to Rajeev and the team as to where we might be going for 2026. In addition, during our last segment, we will talk about a recap of our 2026 outlook. So George, let's begin with you to talk a little bit about what that inflation report might be, also some of the implications of the employment data, even though it's not complete. George?
George Mateyo [00:05:05]
Well, Brian, I'm not sure if we can make too much of the data that came out this week in the sense that it was kind of noisy. And more specifically, the claims numbers that you referenced. Well, I think we kind of like to look at claims because it's a good flat point in terms of really some near-term economic data, and it comes out on a weekly basis, or it used to anyway. But this number was pretty low, as you mentioned. It almost seems like artificially low. I don't know if that was because of the fact that took place during the Thanksgiving holiday. And sometimes, obviously, people aren't probably out in the streets looking for work during Thanksgiving, hopefully. And that might kind of skew some of the data on the downside. The other data that you talked a little bit about, of course, has to do with ADP and employment. In the past, there, too, many people didn't really use that indicator very much. They kind of thought there was some sampling issues that probably we won't get into right now. But again, the overall numbers suggest the overall trend is, again, a cooling labor market, but not collapsing. And just a general sense that the labor market is in okay shape right now. And that's probably good enough by all accounts. I think the market probably took it to heart that the Fed might not be pausing after all, because the numbers were a little bit soft. But we still have to navigate probably this malaise we're in with respect to the fact that data has been pretty opaque. The other signal that just came out this morning, of course, is the inflation numbers, which again suggests that inflation is still kind of sticky, but not spiraling out of control again. So again, we have this ongoing narrative with respect to cooling labor conditions and sticky but not rising inflation. So I think overall, it kind of is an interesting setup for the Fed to kind of chew on this. At the same time, their own leadership transition is still kind of swirling around in the ether that we have to kind of understand a little bit. So I don't think there's going to be too much new news that we have to uncover. The Fed probably still seems somewhat divided, although in the more recent days, it seems like they've kind of coalesced around what they might do. But again, there's probably a little bit of doubt in terms of what they will do for sure. I don't know, Rajeev, if you've any thoughts on that, but it seems to me that the Fed is still kind of operating somewhat blindly with respect to academic data. And maybe a pause makes some sense, but the market is suggesting they should still cut. What do you think?
Rajeev Sharma [00:07:14]
Well, George, today's PCE release is the last piece of data that the Fed is going to get before the FOMC meeting next week. We did see recent labor data that's also quite bifurcated, in my opinion. ADP showed private payroll decline in November. That was the sharpest decline since we've seen since March 2023. So then that fueled some of those easing bets from the market that the Fed is going to cut rates next week. While we had the weekly jobless claims, they fell to a three-year low, suggesting that the Fed could actually wait and see approach, continue with the wait and see approach. So a lot of noises out there with this data. Next week's FOMC meeting currently has a 95% probability that we will have a 25 basis point rate cut. It's being framed more as a risk management rather than a pivot towards aggressive easing. But the thing to watch really will be the number of dissents that we see when we find out the dot plots next week, find out exactly who wanted to vote for a rate cut, who said that we should pause. I think it's going to be very important for the future in 2026 of how deep rate cuts go in 2026.And I think that's going to be very important. But again, I think that you're seeing in the treasury market right now, there is some dip buying. You do have investors out there that are looking at bond yields. They're seeing them at one or two basis points higher across the curve. Tens are visiting their defined range of 4.05 to 4.15%. We've been in that range since the last October FOMC meeting. And you have seen investors come out there and say, okay, 4.15% on the tenure, I'm going to buy.
And we're seeing that.
And Friday is probably the day where I think a lot of investors are going to make some of those decisions before the Fed meeting. The FOMC meeting decision next week. I think that whatever data we've seen so far as far as economic data, many have viewed that as old data, stale data. Once this is all out of the way, which we've got today with the PC number, I think we're going to have to focus more on the Fed meeting.162 We also have other things to focus on. We have auctions. They resume on Monday. $58 billion of a three-year new issues coming to the market.
$39 billion of a 10-year and $22 billion of a 30-year are coming Tuesday and Thursday. So the only day that we don't have an auction next week is Wednesday, which is the Fed meeting, and Friday, which is because it's Friday. So I do think that there's a lot of other moving parts in there that might keep some of the pressure higher and keep yields elevated in the Treasury curve. But really all eyes are on the Fed for next week.
Brian Pietrangelo [00:09:47]
Well, Steve and George and Rajeev, we've all had a great opportunity this past week, which is a good segue to think about 2026 now that we get past the Fed meeting next week. And we had a national client call where we talked about our outlook for 2026 and had a couple of key themes that we want to share with everybody today as a recap for that call on Wednesday, 12-3. So George, let's start with you. We've got our top six for 2026. And the first question in the recap is, do you think the economic momentum will continue and will a recession be avoided in 2026?
George Mateyo [00:10:22]
Yes and no. I guess yes, I think the economic momentum can and will continue, Brian. And no, I think we will avoid, yes, we will avoid a recession. Trying to think the right way to say that.
But yes, I think a recession is probably not likely next year. There's always something that could go wrong. In fact, there's a lot of things that people are thinking will go right next year. So as you think about everybody else's putting out forecasts too, I think the outlook across the board is pretty bright. And we have to keep our eyes open to that because I think there's always things that can kind of go bump in the night if we're not aware of them. And one of which, of course, is inflation, which probably we'll probably talk about that in a little bit, I would guess. But overall, I think the economic momentum continues. News in the next year.
Brian Pietrangelo [00:11:01]
Great, number 2 for George and possibly for Steve, is the artificial intelligence status in a bubble? And if so, do you think it will burst or is there something else going on?
George Mateyo [00:11:15]
Well, I think the expectations are certainly elevated, right? So maybe a bubble is not really the word I'd use right now. But instead, I think the overall expectations around what AI might do in terms of the overall, I get the infrastructure that's associated with it. And we've noted on some of these calls in other places too, that we are kind of shifting to a little bit more of a riskier phase in the sense that many companies now are relying on debt to finance that infrastructure. So I think the answer is probably not yet, but I think it really bears monitoring. Steve, what are your thoughts?
Stephen Hoedt [00:11:43]
Yeah, I think that we're similar, but a little bit nuanced on this between you and me, George, and that I think it's a little bit earlier in the cycle for this than you do. But I would say that when I think about bubbles, a bubble typically encompasses not just market participants, but society as a whole. And if you think back to the bubble in 99 and 2000, like you had sock puppet advertisements on television, you had kind of, It permeated everywhere in society. It started to become a cultural phenomenon as much as a market phenomenon. And I really don't think we're there yet with this AI business. It hasn't permeated everywhere yet. And frankly, there's a lot of skepticism on it. There's more skepticism on it from a consumer adoption standpoint today than there was a year ago. So I think we're entering a phase where, to your point, people are needing to be discerning. And it's very clear that there are ecosystems emerging in the AI world right now with one kind of coalescing around Google Gemini and another coalescing around OpenAI. And as we move through 2026, I mean, it's very possible that we could start to see winners and losers in the AI space as opposed to just everybody assuming everything AI is a winner. And that would be a very big change compared to what we've seen over the last two or three years, where basically anything that touched AI was up and to the right. I think that if we move into a world where there's discernment between winners and losers, that looks a lot different than what we've seen over the last couple of years. So maybe we don't have a bubble per se, but we get this kind of discernment between winners and losers.
And you get some very popular stocks that have some very public potential pullbacks or issues.
Brian Pietrangelo [00:13:53] Great. So moving on to #3, for you, Rajeev, what do you think is happening as we get past next week's meeting for the Fed in 2026? What do you think about the leadership changes at the Fed? What might it mean for interest rates in 2026? And what do you think the outlook is for the dual mandate of both inflation and employment?
Rajeev Sharma [00:14:13]
Well, you know, the outlook for Fed independence, that's going to be a key driver for 2026, key concern for 2026 from investors. There's political pressures. They continue to mount There will be some leadership transitions. There'll be some new appointments. And those new appointments will likely align with White House thinking of aggressive rate cuts. So there will be debates over the Fed's dual mandate, inflation versus maximum employment. This could all weaken the Fed's autonomy, but institutional guardrails remain strong. I think what's going to be very important is the Fed has to maintain its credibility. If the Fed starts looking that it's politically biased in one way, I think there's going to be a lot of concerns about the future of the Fed. And I really do think that, you know, we've seen some dovish signals by the Fed in 2025. We're going to start seeing more stronger dovish signals by the Fed in 2026. Potentially, that could lower Treasury yields. It could steepen the yield curve. Fed Chair Powell's term ends in May 2, 2026. President Trump is expected to nominate a successor. Right now, Kevin Hassett has the odds in his favor, over 80%.
Each year, you have four regional Fed presidents that rotate into the FOMC. So that could reduce the hawkish weight of the Fed and bring it into more of a dovish stance. The net effect would be a dovish majority. And especially if HACCP prioritize easing to counter slowing growth and mortgage stress, you could start seeing more of a dovish posture of the Fed. You could start seeing some things like, you know, we talked about the 2% inflation target. You could see those goalposts move. Perhaps the Fed would be comfortable with the 3% inflation. So the outlook of the Fed's dual mandate comes into question in 2026. I think policymakers are split between prioritizing price stability versus maximum employment.
Brian Pietrangelo [00:16:02]
Thanks, Rajeev. Back to you, Steve, for #4. What do you think about the stock market? Will we post our 4th consecutive year of gains and will the Magnificent Seven remain magnificent?
Stephen Hoedt [00:16:13]
So I would tell you that I think our outlook for next year is a pretty bullish one based on the macro backdrop that we see. The economy looks like it's in a pretty good place. You've got both monetary and fiscal support likely in a significant fashion in 2026, all of which should lead to earnings likely exceeding expectations in our view. And when you think about that backdrop, we also think that it's likely going to be very front loaded in 2026.And to the point that Rajeev made and that George alluded to earlier, you know, if the economy's running hot, there's a fine line between running hot and overheating. And if we get to a place where things are overheating and inflation is higher than what people expect as we run into mid-year and post the Fed chair shift, we could have a scenario where the market gets disappointed with how accommodative monetary policy is. So I think that when we came into 2025, we said it was a down and up year and we kind of got the the call right on that directionally. We think that next year likely is going to be an up and then question mark year, meaning that we could chop around after we have a really great first half of 2026 or depending on how the inflation scenario plays out, you know, you could see a pullback in the second-half of the year. But we think the first half of the year is pretty clearly set up to be a fairly bullish one for equity markets.
Brian Pietrangelo [00:17:55]
Superb. George, we'll finish with you with the final two thoughts for our top six for 2026. And we'll go with #5. Do you think 2026 will be the year that investors need to worry about the national debt and the deficit?
George Mateyo [00:18:12]
Well, to some extent, Brian, I think every year is a year that we have to worry about this because the debt situation is really probably not sustainable on a long-term basis. But at the same time, I don't want to be alarmist about it. We've had this situation. We've known this issue for quite some time. I don't think there's any one tipping point that might be coming down the pike. This is not as if something's going to be surprising us when this happens. But at the same time, these things happen somewhat out of the field when they do, when bondholders do say too much and we just don't know when the point might be. Right now, it doesn't seem to be an issue. It seems to be a situation where we know every debt situation, we know a lot of leverage, but at the same time, people still want to use dollars as a currency with which to transact. And we have a lot of great things going for us as a country, a lot of great things going for us as an economy, and that should continue to benefit us and allow us to actually use this privilege we have to issue debt. So I don't think it's an issue right now, but I think we just have to be mindful of it. And I think the best thing we can do is be diversified around that.
Brian Pietrangelo [00:19:11]
Great, George. And the final question is #6. What do you think about the midterm elections that we have coming up next year in 2026? Should investors get out or stay away from the markets until they pass?
George Mateyo [00:19:22]
Absolutely not. No, I think the elections, I think Steve has said this very well. And every two years, I think now, Steve, we seem to say this, which is the markets really don't seem to care about who wins, frankly. The markets just want clarity, right? And we'll have probably plenty of time to talk about this next year as we get closer to the elections. It's not surprising to see the party in power lose a few seats, and maybe the administration now loses the majority in one branch of Congress, mostly the House, where I think the leadership right now is very narrow. So that wouldn't surprise people, I don't think, and I don't think the markets would react too negatively towards that. And to Steve's point, maybe the administration wants to get ahead of that and also try to legislate certain policies or put forward certain policies anticipation of maybe a tougher legislative calendar in the back half of next year and into the next few years thereafter. So I don't think it's not going to be that problematic for the markets. We probably have some volatility to kind of chop through and there's always going to be something unexpected happens next year. So again, as I said a few minutes ago, Brian, I guess our best view is that diversification is probably the most inexpensive thing you can do to your portfolio and have the least actually impact in most markets, but certainly when markets get crazy and markets go through periods of volatility, being diversified usually is the best solution.
Brian Pietrangelo [00:20:39]
Well, thank you for the conversation today, George, Steve, and Rajeev. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.
Disclosures [00:21:16]
We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.
The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, 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. It should not be used as a basis for investment or tax planning decision.
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. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. 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.