Long-term wealth is built through the discipline of compounding, not the distraction of daily price swings. As this week reminded us, a single trading session can rewrite a week’s return. Through it all, Sowell’s technical gauges remain composed, disciplined, and fully invested.
In the grand theater of American finance, last week was a bit like a Sunday drive in a car that occasionally backfires—you’re still moving forward, but you’re keeping one eye on the rearview mirror and the other on the "Check Engine" light. We started with a holiday to honor our Presidents, which is always nice, but ended the week by watching the Supreme Court smack down President Trump’s trade tariffs.
Life in the Slow Lane
Now, they told us the economy grew at 1.4% in the fourth quarter. That’s a bit like ordering a triple-decker sandwich and getting a single slice of toast with a picture of a turkey on it. It’s "growth," sure, but you’re still hungry—especially since economists were expecting a much heartier 2.5%.
Most of that sluggishness came from the 43-day government shutdown we had last fall. It turns out that when you turn the lights off in Washington for six weeks, the rest of the house gets a little chilly. However, the economy still had a healthy 2.2% annual growth for 2025.
On Wednesday, the Federal Reserve released its meeting minutes, and they kept interest rates exactly where they were—at 3.5% to 3.75%. It’s the ultimate "Wait and See." The Fed is like that guy at the deli who spends ten minutes looking at the tuna salad before deciding he’s not hungry.
Usually, when economic data looks a little "blah," you’d expect bond yields to drop in anticipation of a rate cut. But instead, Treasuries did a little stretching. The 10-year yield crept up to 4.08%. Why? Because the PCE Price Index came in at 2.9% YoY, an uptick from November. It’s the bond market’s way of saying, "I’ll believe in a rate cut when I see it, and even then, I might want a second opinion."
A Tilt in the Data
If you look under the hood, the data had a bit of a bearish tilt last week. Beyond the GDP miss:
The Inflation Bug: Both Headline and Core PCE rose 0.4% MoM, pushing Core inflation up to 3.0%. It’s not a fever, but it’s definitely a "warm" print that makes the Fed's hawkish January minutes look justified.
The Manufacturing Blues: S&P Flash PMI reports hit multi-month lows, and even the Atlanta Fed’s Nowcast for Q1 was shaved down to 3.1%.
The Bright Spot: People are still working. Initial Jobless Claims fell to 206K, well below the 223K expected. It seems the American worker is the only thing moving faster than the government's printing press.
Then came last Friday. The Supreme Court handed down a 6-3 ruling that slapped down the administration’s broad tariffs. It seems the Court decided the Executive Branch was treating the International Emergency Economic Powers Act a bit too much like an open bar. The S&P 500 jumped 1.1% for the week, and the Nasdaq—which had been acting like a teenager who lost his phone—suddenly found its smile again, finishing up 1.5%. Investors saw the potential for this to positively change future earnings guidance.
America: Looking Beyond the "Magnificent"
Despite the clouds, the kids are actually doing their homework. Over 60% of the S&P 500 have reported, and they’re beating both top and bottom lines. Revenue growth is up 8.93%, and EPS growth is tracking at 12.36%.
But here’s the real kicker: if you only look at the headline index, you’re missing the party in the backyard. While the S&P 500 Index is only up 1.1% YTD, the S&P 500 Equal-Weighted Index is up a robust 6.59% YTD. It turns out there is more to the S&P 500 than just the "Magnificent Seven" stocks. We’re finally seeing some democratization in the markets, where the average company is actually outperforming the tech giants that usually suck all the oxygen out of the room. It's a nice change of pace; it’s like realizing the rest of the band is actually pretty good, not just the lead singer.
The Week Ahead: The Heavyweights Enter
We’re heading into a week that could move the needle—or at least shake the table. We’ve got energy players, Home Depot, TJX, Salesforce, Intuit, and Berkshire Hathaway reporting. And of course, there’s NVIDIA. At this point, NVIDIA’s earnings are less of a financial report and more of a national day for the "AI Dream."
In the end, we’re moving forward—just keep an eye on the road.
“Time is really the only capital that any human being has, and the only one he can't afford to lose."
— Thomas Edison
Where Will the Fed Funds Rate Go in 2026?
By Phil Wool, PhD
“Interest rates are to asset prices like gravity is to the apple. They power everything in the economic universe.”
—Warren Buffett
Given investors’ anxiety over technology stocks so far this year—amidst what some have referred to as the “AI scare trade”—it would be easy to conclude that 2025’s strong sentiment toward the US economy and stock market had given way to a more pessimistic mindset. In one area, though, investors seem to be feeling much better vibes: the outlook for Fed rate cuts in 2026.
In part, that’s because of a growing recognition that in a few short months, President Trump will finally get his wish for a new Fed chair, as current head Jerome Powell’s tenure ends and the president’s pick, Kevin Warsh, most likely takes the helm. But it’s also down to fundamentals. After suffering lingering effects of a virtual macro information blackout at the hands of last year’s lengthy government shutdown, we’re also finally starting to get some good data on America’s economy.
Those numbers are telling us where matters stand on the Fed’s dual mandate—holding inflation at bay while supporting robust employment—and have also been driving some strong action in derivatives priced according to traders’ beliefs of when and by how much the US central bank is likely to cut rates. Below, we’ve plotted those futures’ price changes since 2026 began.
Rate Cuts in 2026: Traders May Underestimate Risk of Slower Fed Easing Market-implied probability, # of rate cuts by Fed in 2026, Jan. 1 - Feb. 13, 2026
Mid-February turned out to mark an important milestone for those hoping to see more easing this year, as the probability of three or more rate cuts in 2026—a number that had wavered substantially since the beginning of January—finally crossed 50% and became the more-likely-than-not outcome. Strong January jobs data released on February 11, 2026, didn’t help the doves’ case, but a softer-than-expected January CPI released just two days later gave investors hope that a more Trump-friendly Fed might see its way to a third cut, with easing seen resuming by June or July.
Watching unconditional AI enthusiasm fading, previously high-flying hard assets like gold, silver, and cryptos crumbling, and a slew of geopolitical risks brewing perilously in the background—all worries we’ve weighed in past commentary—it seems that policy rate reductions couldn’t come at a better time to keep the rally in risk assets going. Before jumping to conclusions on the magnitude and timeline for future rate cuts, we believe it’s worth considering factors that could influence the odds on the other side of that coin.
Let’s start with the new Fed chair arriving in May, and let’s set aside the fact that Mr. Warsh is seen as one of the more hawkish candidates Trump might have tipped for the job. He’s still but one of 12 voting members of the FOMC, only two of whom—Governors Miran and Waller—appear decisively dovish. Indeed, we’ve watched dissent among the committee’s members rise as the Fed funds rate has fallen, and it wouldn’t surprise us in the least if the group retains its independent spirit despite White House hopes for a more accommodative central bank post-Powell.
Delving deeper into the data, it’s also easy to see where cracks in the fundamental case for faster cuts might emerge. We’ve already referenced strong job numbers, raising the bar for further easing. On the inflation side of things, we note that January’s favorable headline number hinged mostly on falling energy costs: a trend that could turn as oil prices rise. Moreover, anecdotal evidence from the Fed’s Beige Book suggests companies’ willingness to absorb the tariff shock and protect consumers from rising prices might finally have reached its limit, which could stall progress on inflation just a little too far above the Fed’s 2% target.
So, though it’s easy to imagine a pair of rate cuts coming in the second half of this year—and that’s the degree of easing predicted by the Fed’s last dot plot, and our current base case—we also have doubts. In light of the risks we’ve just described, we worry traders may, in jumping out to a forecast of three or more quarter-point reductions by December, be putting too much weight on the possibility of a positive surprise and could be overlooking the possibility that “higher for longer” policy makes an unwelcome return in 2026.
Disclosure: This material is for informational purposes only and should not be considered investment advice. An investor should consult with their financial professional before making any investment decisions. The opinions contained herein are subject to change without notice and do not necessarily reflect the opinions of Rayliant Investment Research. Indices cannot be invested in directly and are unmanaged.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.
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WEEK AHEAD
February 23-27, 2026
Hands on the Steering Wheel
In the grand theater of American finance, last week was a bit like a Sunday drive in a car that occasionally backfires—you’re still moving forward, but you’re keeping one eye on the rearview mirror and the other on the "Check Engine" light. We started with a holiday to honor our Presidents, which is always nice, but ended the week by watching the Supreme Court smack down President Trump’s trade tariffs.
Life in the Slow Lane
Now, they told us the economy grew at 1.4% in the fourth quarter. That’s a bit like ordering a triple-decker sandwich and getting a single slice of toast with a picture of a turkey on it. It’s "growth," sure, but you’re still hungry—especially since economists were expecting a much heartier 2.5%.
Most of that sluggishness came from the 43-day government shutdown we had last fall. It turns out that when you turn the lights off in Washington for six weeks, the rest of the house gets a little chilly. However, the economy still had a healthy 2.2% annual growth for 2025.
On Wednesday, the Federal Reserve released its meeting minutes, and they kept interest rates exactly where they were—at 3.5% to 3.75%. It’s the ultimate "Wait and See." The Fed is like that guy at the deli who spends ten minutes looking at the tuna salad before deciding he’s not hungry.
Usually, when economic data looks a little "blah," you’d expect bond yields to drop in anticipation of a rate cut. But instead, Treasuries did a little stretching. The 10-year yield crept up to 4.08%. Why? Because the PCE Price Index came in at 2.9% YoY, an uptick from November. It’s the bond market’s way of saying, "I’ll believe in a rate cut when I see it, and even then, I might want a second opinion."
A Tilt in the Data
If you look under the hood, the data had a bit of a bearish tilt last week. Beyond the GDP miss:
Then came last Friday. The Supreme Court handed down a 6-3 ruling that slapped down the administration’s broad tariffs. It seems the Court decided the Executive Branch was treating the International Emergency Economic Powers Act a bit too much like an open bar. The S&P 500 jumped 1.1% for the week, and the Nasdaq—which had been acting like a teenager who lost his phone—suddenly found its smile again, finishing up 1.5%. Investors saw the potential for this to positively change future earnings guidance.
America: Looking Beyond the "Magnificent"
Despite the clouds, the kids are actually doing their homework. Over 60% of the S&P 500 have reported, and they’re beating both top and bottom lines. Revenue growth is up 8.93%, and EPS growth is tracking at 12.36%.
But here’s the real kicker: if you only look at the headline index, you’re missing the party in the backyard. While the S&P 500 Index is only up 1.1% YTD, the S&P 500 Equal-Weighted Index is up a robust 6.59% YTD. It turns out there is more to the S&P 500 than just the "Magnificent Seven" stocks. We’re finally seeing some democratization in the markets, where the average company is actually outperforming the tech giants that usually suck all the oxygen out of the room. It's a nice change of pace; it’s like realizing the rest of the band is actually pretty good, not just the lead singer.
The Week Ahead: The Heavyweights Enter
We’re heading into a week that could move the needle—or at least shake the table. We’ve got energy players, Home Depot, TJX, Salesforce, Intuit, and Berkshire Hathaway reporting. And of course, there’s NVIDIA. At this point, NVIDIA’s earnings are less of a financial report and more of a national day for the "AI Dream."
In the end, we’re moving forward—just keep an eye on the road.
Where Will the Fed Funds Rate Go in 2026?
By Phil Wool, PhD
“Interest rates are to asset prices like gravity is to the apple. They power everything in the economic universe.”
—Warren Buffett
Given investors’ anxiety over technology stocks so far this year—amidst what some have referred to as the “AI scare trade”—it would be easy to conclude that 2025’s strong sentiment toward the US economy and stock market had given way to a more pessimistic mindset. In one area, though, investors seem to be feeling much better vibes: the outlook for Fed rate cuts in 2026.
In part, that’s because of a growing recognition that in a few short months, President Trump will finally get his wish for a new Fed chair, as current head Jerome Powell’s tenure ends and the president’s pick, Kevin Warsh, most likely takes the helm. But it’s also down to fundamentals. After suffering lingering effects of a virtual macro information blackout at the hands of last year’s lengthy government shutdown, we’re also finally starting to get some good data on America’s economy.
Those numbers are telling us where matters stand on the Fed’s dual mandate—holding inflation at bay while supporting robust employment—and have also been driving some strong action in derivatives priced according to traders’ beliefs of when and by how much the US central bank is likely to cut rates. Below, we’ve plotted those futures’ price changes since 2026 began.
Rate Cuts in 2026: Traders May Underestimate Risk of Slower Fed Easing
Market-implied probability, # of rate cuts by Fed in 2026, Jan. 1 - Feb. 13, 2026
Mid-February turned out to mark an important milestone for those hoping to see more easing this year, as the probability of three or more rate cuts in 2026—a number that had wavered substantially since the beginning of January—finally crossed 50% and became the more-likely-than-not outcome. Strong January jobs data released on February 11, 2026, didn’t help the doves’ case, but a softer-than-expected January CPI released just two days later gave investors hope that a more Trump-friendly Fed might see its way to a third cut, with easing seen resuming by June or July.
Watching unconditional AI enthusiasm fading, previously high-flying hard assets like gold, silver, and cryptos crumbling, and a slew of geopolitical risks brewing perilously in the background—all worries we’ve weighed in past commentary—it seems that policy rate reductions couldn’t come at a better time to keep the rally in risk assets going. Before jumping to conclusions on the magnitude and timeline for future rate cuts, we believe it’s worth considering factors that could influence the odds on the other side of that coin.
Let’s start with the new Fed chair arriving in May, and let’s set aside the fact that Mr. Warsh is seen as one of the more hawkish candidates Trump might have tipped for the job. He’s still but one of 12 voting members of the FOMC, only two of whom—Governors Miran and Waller—appear decisively dovish. Indeed, we’ve watched dissent among the committee’s members rise as the Fed funds rate has fallen, and it wouldn’t surprise us in the least if the group retains its independent spirit despite White House hopes for a more accommodative central bank post-Powell.
Delving deeper into the data, it’s also easy to see where cracks in the fundamental case for faster cuts might emerge. We’ve already referenced strong job numbers, raising the bar for further easing. On the inflation side of things, we note that January’s favorable headline number hinged mostly on falling energy costs: a trend that could turn as oil prices rise. Moreover, anecdotal evidence from the Fed’s Beige Book suggests companies’ willingness to absorb the tariff shock and protect consumers from rising prices might finally have reached its limit, which could stall progress on inflation just a little too far above the Fed’s 2% target.
So, though it’s easy to imagine a pair of rate cuts coming in the second half of this year—and that’s the degree of easing predicted by the Fed’s last dot plot, and our current base case—we also have doubts. In light of the risks we’ve just described, we worry traders may, in jumping out to a forecast of three or more quarter-point reductions by December, be putting too much weight on the possibility of a positive surprise and could be overlooking the possibility that “higher for longer” policy makes an unwelcome return in 2026.
Disclosure: This material is for informational purposes only and should not be considered investment advice. An investor should consult with their financial professional before making any investment decisions. The opinions contained herein are subject to change without notice and do not necessarily reflect the opinions of Rayliant Investment Research. Indices cannot be invested in directly and are unmanaged.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.