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Brian Pietrangelo [00:00:01] 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 2nd, 2025. I'm Brian Pietrangelo, and welcome to the podcast.
We certainly have a lot to discuss today in terms of the markets and the economy. But before we get to that, as we go into the weekend tomorrow, Saturday, May 3rd, 2025 has two really important events. If you're a fan of either investing where we've got the annual Berkshire Hathaway annual shareholder meeting gets a lot of attention; a lot of people like to hear what comes out of Omaha. And also if you're a fan of horse racing, the 151st Running of the Kentucky Derby coming up with you around 7 o'clock on Saturday, so tune in if you'd like to see the greatest two minutes in sports.
With that, I would like to introduce our panel today. Some might say they are thoroughbreds 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 activity, the economic release calendar was robust, so we've got a significant amount of information to share with you. We're gonna put it into three different categories, the first one being GDP growth, the second one being inflation, and the third one being the overall employment situation or the labor market.
So first up, we talk about the first estimate - or the advance estimate, as it is known - on the first quarter of 2025 real gross domestic product or GDP. That number for the quarter came in at a negative 0.3%, so a negative which has been significantly different than the 2024 quarters we had, and actually goes back all the way to the first quarter of 2022 as the last time that we had a negative quarter on real GDP. Digging into the underlying drivers of GDP, we did see that overall consumer spending did in fact slow. Overall government spending actually went negative. And the real driver for the quarter was net exports, which actually was negative because imports were higher than exports. So some of this could have been due to pre-tariff buying and importing into the United States, which did affect the number. Some of it also could have related to the gold import of some bullion that didn't necessarily have anything to do with currency reserves, but overall just commodity gold. Either way, the negative quarter does get some attention when we talk about overall expectations for the coming year within the remainder of 2025, and we'll certainly dig into it with our panel.
And second, we've got a release from the Bureau of Economic Analysis on personal consumption expenditures measure of inflation, which is the Fed's preferred measure, obviously, as we have said many times on this podcast before. The good news here is the report was favorable for March of 2025, where the month-over-month increase came in relatively flat, which is a 0% increase, which was very good relative to other prior months at 0.4%. If we look at that on a year-over year basis, also good news there: for March of 2025, the all items number came in at 2.3% growth in terms of inflation, which was lower than both January and February. And also the core items, excluding food and energy measure of inflation on PCE, Also lower at 2.6%. So good news headed in the right direction that way. Simply, opportunistically, the Fed can consider some of this information in their overall decision for policy.
And for the third category on the employment market we've got a number of indicators. Earlier in the week we had a JOLTS report which showed job openings actually came down a little bit from the prior month. So again our employers hesitating to post jobs relative to the uncertainty in the market. It's only gone down a little bit so far. And just yesterday, the weekly unemployment claims report came out for the weekend in April 26th at 241,000. This is a little bit of a jump from the prior week of 18,000, but again, we've seen this before in terms of the vacillation of this data report number going up and down, so it still stays within that corridor we've talked about for the last 15 to 18 months between 200,000 and 260,000 so good news there. We'll have to watch to see if this is a trend upward or just the normal bouncing up and down of this data point on a week-to-week basis.
And finally, the second biggest news item for the week, which is the employment situation, also from the Bureau of Economic Analysis, which gives us new nonfarm payrolls, which came in for 177,000 for the month of April. Now, this is good number because it was above expectations, but also we look at the revisions which happened for the prior two months. So if we look at February and March, those numbers were revised downward by 58,000. So ultimately, I think net-net a pretty good news in terms of the overall labor market remaining stable in spite of uncertainty for employers. And finally, the overall unemployment rate remained at 4.2%, which was consistent with prior month.
So let's turn to our panel with our discussion based on all of this information, and we'll go to George first. And George, so based on this week's information, as we look to this economic horse race, who do we think is in the lead in terms of positive momentum, inflation, employment, or tariff resolution? Or is it neck and neck and still too close to call in terms of uncertainty.
George Mateyo [00:05:54] Well, Brian, as we round the bend here to talk about the week that just ended, I think the momentum anyway resides with probably what we've seen on the tariff side. And I think that market has been probably more responsive to that of late than other things, and that continues to be the case for the last few weeks. I think the month though that just started with showers and ended with flowers, as they say. And we've seen some abatement and some easing of pressures with respect to tariffs. And even just last night. It seems like the thawing is continuing. Now, they're still, to be clear, maybe as we've talked about last week and before, we might've seen the peak of uncertainty, but I don't think we've seen the peak impact from tariffs. In other words, if some of these tariffs remain in place, or even if they come down a little bit, we're still talking about maybe some potential pressures with respect to inflation and certainly growth. Near term though, it doesn't seem to be that worrisome to the market. The market, I think, has kind of picked up some cues from other things as well.
This week, as you mentioned, had a full slate of economic numbers to digest. Some of them were on the weaker side. And when they were weak, the market kind of thought that, gee, maybe the Federal Reserve will start thinking about cutting interest rates. And that would be beneficial to the overall growth outlook. But today we've actually seen probably better expected news on Friday here around 10:15 a.m. on Friday. And we're actually seeing the market lift on higher and better expected job growth. So I think that's kind of an important nuance.
And I think the market is trying to kind of wrap its heads around really where we are in the current state and where we're going, because I think again, some of the numbers are still backward-looking in terms of the overall impact of tariffs. In other words, we've seen tariffs announced, but we haven't seen the full impact really kind of transcend into over economic data. We talked a little bit about GDP being somewhat of a factor. Again, we don't really kind of focus on that too much because that is backward-looking. And frankly, this report had just about anything for everybody in the sense that the overall number was weak as we previewed, but it was somewhat distorted by imports. And imports are one of those things that when you actually have higher imports, that actually gets taken away from GDP in the sense that it's not economic activity that occurs here domestically. So you have to take imports out and imports surged the last quarter, which again is one of the reasons why the numbers were weak. But the overall, some of the headline numbers and some of them, maybe the core GDP numbers were pretty good. I thought anyway, a couple of mixed bags here and there, you can kind of take a crack at those.
And the same can be said for today's employment report. I think that's really what is probably more important to the outlook going forward. In other words, the job numbers came in slightly better than expected. Again, it's somewhat backward-looking in the sense of these numbers kind of reflect things before the tariff impact took hold. And I think we're also seeing some softening. We have to acknowledge that full stop, in the since that some of the numbers continue to trend lower. That doesn't mean we're rolling over into recession right now, but it does suggest furthermore that the slowing continues. So I want to kind of put that in the context in terms of really, again, the overall notion that uncertainty is going to remain somewhat elevated as we go through the rest of the summer or into the summer, I should say. And we have to digest the fact that the impact again from tariffs is still in front of us, not behind us. So I think, Rajeev, importantly, if you think about what this means for the Fed, I'd be curious to get your take on really where futures markets are right now with respect to rate cuts for the rest of this year and how the Fed might be processing some of this news as well.
Rajeev Sharma [00:09:13] Well, George, the jobs data: traders are definitely pulling back their rate cut expectations for an early June rate cut. I think it's fallen below 50% as soon as the jobs number came out. And this is a big deal because most of April, we saw the June market expectations being like, it is a done deal that we're getting a 25 basis points rate cut.
The Treasury market was not set up for this stronger than expected jobs report. I think bond investors think that this might be the last solid jobs report that we see. We are seeing a bear fattener in the stronger jobs report and bond investors are buying on the dip. So I think yields have a little bit to back up on the highs of the day, likely due to supply considerations that will be coming out next week. We have the May refunding and an expected increase in corporate bond sales next week, but with credit spreads tightening on the risk on trade that we've seen during the week, I don't anticipate the new deals coming with any concessions.
I think that this is a reversal of the PCE data that we saw during the week. That report raised some concerns about stubborn inflation, perhaps the Fed would have to cut rates sooner than expected, potential stagflation or recession concerns. Would the Fed be able to hold rates steady because of tariffs? But today's jobs report really took June below 50% very quickly. So most investors feel that yields will move lower. And today's jobs report have traders backing away from their pricing of four interest rate cuts for by year end. This is all because of the jobs report. I mean, obviously the Fed has a dual mandate about inflation and employment. And I think today's report might be spooking the market a little bit. That's where we're seeing yields move higher. And it's all about the fact that we might not get that June rate cut that many investors had expected.
George Mateyo [00:11:12] So if rate cuts are going away a little bit, I think it's also, again, against the backdrop of, you said, maybe stronger than expected employment. Although, again we have to acknowledge the fact that we still have some weakness potentially ahead of us. We'll see. But if that's right, if the market's right about the fact that maybe tariff risk, if you want to call it that, is starting to dissipate slightly.
What's notable to me, Rajeev, also is that there are things the administration is turning to as well. Immigration, of course, being one of them. Tax policy is something we'll probably hear a lot about in the weeks and months ahead, I would guess. And the other thing that kind of hit maybe part of your world this week has to do with what the administration's proposing with some higher educational institutions. And that's kind of interesting. I'm kind of curious to get your thoughts on, is that having an impact on the municipal bond market? Because there are some questions around the tax income status of some of these institutions. So are you seeing any impact there so far?
Rajeev Sharma [00:12:01] I think this issue about tax exempt status has come up several times. And I think if we think about, will they get rid of tax exempts status, it's probably gonna be on the universities, maybe the stadiums, sector-specific, but I think it's a going forward basis. So the existing bonds that are out there right now, we haven't seen a lot of spread widening there. I don't think that that's gonna come under question. There's enough lobbyists that will really support the tax exempt status. But if you launch a new stadium deal or a new university deal, I think they will come with significant concessions because of all this noise that's out there. But we've seen this before and there's enough lobbyists out there that really want that tax exempt status. I think it's a going forward issue, not an existing bond issue.
George Mateyo [00:12:49] Well, I think it's also just one maybe little anecdote in terms of opportunities, which I think was the kind of keyword you mentioned. There may be opportunities for investors to look at when things get maybe dislocated or there might be some blowback there. In the markets that we could anticipate. I think it's also fair to say one note that I was talking to a client earlier today about had to do with the fact that some of these large endowments have a lot of private equity in their portfolios, very significant allocations in fact, and they might be looking to sell and probably raise some liquidity for those portfolios. Now, that's not really an investment right for every client, but certainly the secondary market in private equity might be one of those opportunity sets as well that people could that are taken advantage of. But we'll leave that for another day.
I'll pivot over to you, Steve, and talk about what you've seen in the equity markets this week. It was a busy week from the earnings perspective. A big bunch of S&P companies reported earnings, and at the same time, the market had to digest some of these things we've been talking about at the macro level, too. But what'd you take away from this week?
Stephen Hoedt [00:13:46] I mean, I think that this was a pretty important week for the market, George, because of, not just because of the earnings, because I think the earnings have helped drive some of the price action. but you know, I think over the last few weeks, we've talked about volatility and we've talked about price levels on the S&P 500., and we did get a couple of important developments there that I want to touch on.
So first, the market made a new 20-day high this week for the first time since we've gone into drawdown over the last few, few weeks. That's important because it's the first sign that the market is kind of healing, right. So I know we've come off the lows probably almost what, 900 points on the S&P, which is kind of crazy, because the bottom was around 48, 50. And as I sit here looking at my Bloomberg today, we're 25 points away from $5,700. So, you know, that's a pretty sizable move in a fairly short period of time. The 20-day high is right in that neighborhood of, say, $5,660. So, right now, we've hit a new 20- day high today. That's important. That one-month high shows that the market is healing.
We've broken above some of these things that technicians look at, whether that's the downward-sloping 50-day moving average, whether that’s the downtrend line from February through March. All these things have given way as the market has digested the tariff news and focused on the less-bad outlook from some of the tech companies this week. And I think that when I look at volatility: volatility has continued to normalize. We're 22 on the Cboe Volatility Index today. Nineteen and a half is the long-term average, so still slightly above average, but that's a far cry from 50 plus where we were a few weeks ago.
And then importantly, I would tip my hat to the fixed income markets. And when I look at the BB versus BBB spreads to get a gauge of where risk is in the credit markets. I'm looking at a BB versus BBB spread this morning of 114, and that's actually about 10 basis points lower than where we were prior to “Liberation Day.” So while we did have a spike above 150 in that spread post the tariff announcements, we are now at levels that are tighter than where we were prior to that.
So to me, as long as the credit markets remain healthy, which it seems like they are, and volatility continues to normalize, I think that this idea that the market is coming around to digesting the various economic impacts of the tariff news and everything else, and come into the conclusion that maybe things are less bad than people originally thought. That we've got a fairly constructive setup here as we head into the summer.
Brian Pietrangelo [00:17:09] So Steve, if you think about all that data, you mentioned price levels up and down, and you mentioned volatility up and down. And emotionally, it feels like we're down 20% for the year, but in reality, we're down only about five. Want to talk about that? And George, do you have any thoughts on that as well?
Stephen Hoedt [00:17:27] Yeah, I think that the thing that, if you look at sentiment, one of the things that's probably the best tailwind for the market right now is if you look at the sentiment levels for individual investors and others. Sentiment remains incredibly negative right now, especially relative to kind of normal levels. People have gotten all beared up on the tariff news. And, you know, quite frankly, when I look at where price is today relative to where sentiment is. I think that there's a lot of potential fuel that could be added to the fire as people change their mind about and stop being as negative as they are right now. So I’d really focus on that relative to where we're at in terms of price, because the fear of missing out can be a very powerful thing. I mean, if the folks who are super negative decide to just be less negative than they are, we could very quickly be close to all-time highs on the S&P 500 again. And I know it's crazy to talk like that, especially given that the market is, you know, when we look at valuation multiples and things like that it's extended, right? I mean we never got cheap on the pullback, even though we were 800 points lower than where we're at today on the S&P. But at the end of the day, I think that upside risk here is probably more likely right now than downside.
George Mateyo [00:19:01] To me though, I think Steve, it feels like we're gonna have to chop around a bit more. I think we're going to have to try and maybe kind of find a level of stability at some point. I don't disagree with you that sentiment is one of the things you can use as a contrarian indicator, but fundamentally speaking, I do worry a little bit that maybe we might backslide a little bit this summer in terms of some of these impacts from tariffs on the headline numbers in terms of maybe employment and that can be a little bit sloppy. Maybe the low is in, but we'd often have to kind of recognize that things don't always revert higher given the fact that there are so many uncertainties. And frankly, again, we've talked about this too, that when things were really pretty squirrely about a month ago, we suggested this people kind of stick to their portfolio positioning, try to really remain neutral towards their overall bets. In other words, don't really underweigh things. And frankly don't capitulate when there is fear in the market. And I think that's played out fairly well so far. But I think it is going to be of maybe a period of maybe some choppiness as we go through the summer, but who knows? I mean, I think it'll probably be fair to say that there's a lot of uncertainty that we all have to process and comprehend. But again, maybe some of the peak uncertainties behind us, but the peak impact from tariffs is still in front of us.
Brian Pietrangelo [00:20:12] Well, thank you for the conversation today, George, Stephen 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.
Disclosures [00:20:45] 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.