Another week of volatility has softened Sowell’s technical moving averages lower, yet the underlying economic signals remain firmly grounded. Last week’s narrative from the Federal Open Market Committee stayed largely the course—acknowledging near-term crosscurrents while maintaining a constructive view on the economy’s longer-term fundamentals. For now, Sowell’s gauges also remain composed and steady.
This past week, the market felt less like a smooth-sailing cruise and more like a heavy freighter trying to maintain its heading in a "Perfect Storm." For those looking for a safe harbor, the message from the tape was clear: there was nowhere to hide - not even in Gold. Uncertainty continued to unnerve the fleet as the S&P 500 and Nasdaq Composite lost 1.87% and 2.06%, respectively. This latest bout of "geopolitical chop" has left us with a year-to-date loss of 4.68% for the S&P and a more bruising 6.73% for the Nasdaq.
The Iran conflict continues to weigh heavily on investor psychology, acting like a persistent fog that refuses to lift. It’s a triple-threat scenario: stocks are dropping as geopolitics, elevated oil prices, and surging Treasury yields combine to test the nerves of even the most seasoned captains. This unease kept the CBOE Volatility Index (VIX) at 26.78—well above our "comfort zone" of 20, confirming that the market’s "Check Engine" light isn’t just on; it’s blinking.
The consequence of rising oil prices is filtering directly into the bond market. Higher near-term inflation expectations pushed the 10-year and 30-year U.S. Treasury yields up another 11 and 6 basis points, respectively, to 4.39% and 4.96%. When the "risk-free" rate starts looking like a high hurdle, equity markets naturally feel gravity.
The "How Long and How High" Dilemma
The primary focus on the bridge right now is "how long" the conflict will last and "how high" oil will stay. Fed Chair Powell, in a rare moment of radical transparency during last week’s FOMC meeting, essentially told us that the Fed’s radar is just as cluttered as ours. He noted, “The thing I really want to emphasize is that nobody knows. The economics effect could be bigger, they could be smaller, they could be much smaller or much bigger. We just don't know. So, people are writing down something that seems to make sense to them, but have no conviction that's -- to your point, if we have high -- if we have a long period of much higher gas prices, that's going to weigh on consumption, that will weigh on disposable personal income, and it'll weigh on consumption. But we don't know if that's going to happen, it -- something quite different from that, we might have much lower than expected pass-through.”
While the Fed admits it has no conviction about the duration of higher gas prices, the market is busy making its own assumptions. It is important to remember that geopolitics can shift on a dime—President Trump’s administration has the capacity to end this conflict abruptly. While lasting implications will remain, oil prices should eventually normalize. WTI crude was flat on the week at $98/barrel, suggesting that while we aren't out of the storm, we aren't sinking further into it either.
A Tale of Two Coasts: U.S. vs. Europe
Interestingly, while we maintain a steady watch, our neighbors across the Atlantic are bracing for a chillier voyage. Goldman Sachs recently cut its European growth outlook, forecasting oil at $77 and gas at 46 EUR/MWh for 2026. They now see Euro area growth at a meager 1%, with inflation peaking at 2.9%—a significant jump from their pre-war estimate of 2%.
In contrast, the Fed remains surprisingly optimistic about the American vessel, forecasting GDP growth of 2.4% this year. They cite resilient consumer spending and expanding business investment, even if the housing sector is currently "dead in the water" (New Home Sales dropped a staggering 17.6% in January to their lowest levels since 2022).
The Data Deck: Mixed Signals in the Mist
FOMC Rate Decision: As expected, the FOMC left rates unchanged at 3.50%–3.75%. The "dot plot" still only hints at a single 25-basis-point cut for all of 2026.
PPI Warning: Headline Producer Prices jumped 0.7% MoM—the largest increase in two years—putting the YoY increase at 3.4%. It seems the "inflationary barnacles" are harder to scrape off than anticipated.
Labor Market Resilience: Initial Jobless Claims declined to 205K, proving that the U.S. labor force remains the sturdiest part of the hull.
AI Momentum: Micron posted "blockbuster" earnings, nearly tripling revenue thanks to the insatiable demand for Nvidia’s AI chips. Despite the shares slipping 3% on the news (a classic "sell the news" event), the underlying trend remains up by more than 350% over the last year. Even in a storm, the engines of digitalization are running at full steam.
Watching the Horizon
With a soft earnings calendar next week, we fully expect the Iran conflict and President Trump’s actions to dominate the headlines. Investor sentiment will likely remain tethered to the latest news from the Strait.
However, we maintain our optimism. Market psychology is currently priced for "perpetual gloom," but as any sailor knows, the wind eventually changes. We are focused on "Quality Growth" because those are the ships built to withstand the waves. We aren't abandoning the deck; we are checking the seals and preparing for the moment the sun breaks through the clouds. Stay disciplined, stay invested, and keep your eyes on the long-term horizon.
“We see the current stance of monetary policy as appropriate to promote progress toward our maximum employment and 2 percent inflation goals. The implications of developments in the Middle East for the U.S. economy are uncertain.”
—Chair Powell’s FOMC Press Conference, Mar 18th, 2026
Is the US Equity Risk Premium Ready for a Rebound?
By Phil Wool
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die in euphoria.”
—Sir John Templeton, legendary mutual fund investor
With nearly a quarter of the year in the books, there seems to be more than enough risk to go around. Of course, we always knew we would have the overhang of tariffs to contend with in 2026, with a number of temporary agreements set to expire and many companies reportedly reaching their limits in terms of how much of the price shock to consumers they’re willing to absorb. Likewise, macro forecasters had previously sounded the alarm over US fiscal discipline and long-term inflation risk, which is complicated this year by the end of Fed chair Powell’s term and mounting concerns over the central bank’s independence. One quarter into the year, we’ve added to that list of worries an energy crisis brewing amidst war in the Middle East, rising fear of AI’s existential threat to American jobs and even entire industries—think “SaaSpocalypse”—not to mention references to “recession” and “stagflation” creeping back into the market chatter.
But how seriously are investors really taking the range of risks staring down markets in 2026?
One way of answering that question is by looking at something called the equity risk premium, a tool economists use when trying to explain how an investor setting his or her asset allocation ought to think about the balance between stocks and bonds in their portfolios. If we consider fixed income and equity securities simply as different ways of delivering cash flows to investors—interest payments on bonds versus earnings and dividends paid to common stockholders—then we might distinguish between these different instruments strictly in terms of the level of risk they bring to an investor’s portfolio. Continuing with that train of thought, it seems reasonable for an investor to wonder how much more “risky” equities will return than comparatively “safe” fixed income. The answer to that question is the equity risk premium.
In comparing the risk and reward of stocks and bonds, we need to put things on an apples-to-apples basis, and there are many ways to do that. Below, I’m plotting one version of that calculation. It’s pretty simple to assume the yield on 10-year US Treasuries represents a relatively low-risk bond return. For the US equity return, we take the forward P/E ratio of the S&P 500 Index and invert it, flipping it into an E/P ratio: the so-called “earnings yield,” which is like the “return” on stocks, if you assume that paying the stock price today entitles you to the company’s earnings at the end of the year—in the same way our annual Treasury yield is just the bond’s payout at the end of a year. Now we simply subtract the lower-risk bond yield from the higher-risk stock yield, and we have the “extra” return stocks are paying for the extra risk a stock investor is taking in the market (i.e., the equity risk premium).
Chart Above: Despite Looming Risks, Equity Investors Aren’t Asking for Much!
US Equity Risk Premium, Six-Month Moving Average, Jan. 2000 – Feb. 2026
Source: Rayliant Research, S&P 500 forward earnings yield, 10-year US Treasury yield, as of Feb. 28, 2026.
In the graph above, I’ve actually depicted the six-month moving average of the equity risk premium, which I believe helps iron out some of the noise of month-to-month price volatility and makes it a little easier to track. Looking at the chart, we can see that the equity risk premium fluctuates over time, and one interpretation of the ups and downs is that they’re telling us about investors’ changing sentiment toward risk. The premium is rising amidst the dot-com bubble burst, and to me, there’s a clear spike around the Global Financial Crisis, and another bump around the COVID crash. There are basically two things going on here: when the situation gets risky, stocks often fall—investors sell until the price implies a forward return attractive enough to buy again—and bonds rise, amidst a flight to safety and, often, central bank stimulus. That helps to explain why the equity risk premium sank so low post-pandemic, with stocks and rates both rising.
While the equity risk premium is clearly just one lens through which to view the economy and markets, it seems like a good one for the moment we find ourselves in today, with stocks still trading pretty close to all-time highs, even as the litany of risks I mentioned threatens the bull-market narrative. At the far right of the chart, we see that—with the exception of a blip in 2025 as stocks faced a short-lived sell-off in response to “Liberation Day”—the equity risk premium is mostly negative. In other words, not only are investors in stocks not receiving any extra return for risk, they’re actually paying for it. That doesn’t necessarily mean investors should avoid stocks: earnings growth can raise the equity risk premium just as well as falling prices. It does suggest, however, that those “buying the dip” today are taking a much greater leap of faith than in times past when it comes to earning the bonus yield that makes such extra risk worth taking.
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. The equity risk premium (“ERP”) is a framework, not a forecast, and may not fully capture market dynamics. Forward P/E and E/P are hypothetical constructs and do not guarantee returns.
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
March 23-27, 2026
This past week, the market felt less like a smooth-sailing cruise and more like a heavy freighter trying to maintain its heading in a "Perfect Storm." For those looking for a safe harbor, the message from the tape was clear: there was nowhere to hide - not even in Gold. Uncertainty continued to unnerve the fleet as the S&P 500 and Nasdaq Composite lost 1.87% and 2.06%, respectively. This latest bout of "geopolitical chop" has left us with a year-to-date loss of 4.68% for the S&P and a more bruising 6.73% for the Nasdaq.
The Iran conflict continues to weigh heavily on investor psychology, acting like a persistent fog that refuses to lift. It’s a triple-threat scenario: stocks are dropping as geopolitics, elevated oil prices, and surging Treasury yields combine to test the nerves of even the most seasoned captains. This unease kept the CBOE Volatility Index (VIX) at 26.78—well above our "comfort zone" of 20, confirming that the market’s "Check Engine" light isn’t just on; it’s blinking.
The consequence of rising oil prices is filtering directly into the bond market. Higher near-term inflation expectations pushed the 10-year and 30-year U.S. Treasury yields up another 11 and 6 basis points, respectively, to 4.39% and 4.96%. When the "risk-free" rate starts looking like a high hurdle, equity markets naturally feel gravity.
The primary focus on the bridge right now is "how long" the conflict will last and "how high" oil will stay. Fed Chair Powell, in a rare moment of radical transparency during last week’s FOMC meeting, essentially told us that the Fed’s radar is just as cluttered as ours. He noted, “The thing I really want to emphasize is that nobody knows. The economics effect could be bigger, they could be smaller, they could be much smaller or much bigger. We just don't know. So, people are writing down something that seems to make sense to them, but have no conviction that's -- to your point, if we have high -- if we have a long period of much higher gas prices, that's going to weigh on consumption, that will weigh on disposable personal income, and it'll weigh on consumption. But we don't know if that's going to happen, it -- something quite different from that, we might have much lower than expected pass-through.”
While the Fed admits it has no conviction about the duration of higher gas prices, the market is busy making its own assumptions. It is important to remember that geopolitics can shift on a dime—President Trump’s administration has the capacity to end this conflict abruptly. While lasting implications will remain, oil prices should eventually normalize. WTI crude was flat on the week at $98/barrel, suggesting that while we aren't out of the storm, we aren't sinking further into it either.
Interestingly, while we maintain a steady watch, our neighbors across the Atlantic are bracing for a chillier voyage. Goldman Sachs recently cut its European growth outlook, forecasting oil at $77 and gas at 46 EUR/MWh for 2026. They now see Euro area growth at a meager 1%, with inflation peaking at 2.9%—a significant jump from their pre-war estimate of 2%.
In contrast, the Fed remains surprisingly optimistic about the American vessel, forecasting GDP growth of 2.4% this year. They cite resilient consumer spending and expanding business investment, even if the housing sector is currently "dead in the water" (New Home Sales dropped a staggering 17.6% in January to their lowest levels since 2022).
With a soft earnings calendar next week, we fully expect the Iran conflict and President Trump’s actions to dominate the headlines. Investor sentiment will likely remain tethered to the latest news from the Strait.
However, we maintain our optimism. Market psychology is currently priced for "perpetual gloom," but as any sailor knows, the wind eventually changes. We are focused on "Quality Growth" because those are the ships built to withstand the waves. We aren't abandoning the deck; we are checking the seals and preparing for the moment the sun breaks through the clouds. Stay disciplined, stay invested, and keep your eyes on the long-term horizon.
Is the US Equity Risk Premium Ready for a Rebound?
By Phil Wool
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die in euphoria.”
—Sir John Templeton, legendary mutual fund investor
With nearly a quarter of the year in the books, there seems to be more than enough risk to go around. Of course, we always knew we would have the overhang of tariffs to contend with in 2026, with a number of temporary agreements set to expire and many companies reportedly reaching their limits in terms of how much of the price shock to consumers they’re willing to absorb. Likewise, macro forecasters had previously sounded the alarm over US fiscal discipline and long-term inflation risk, which is complicated this year by the end of Fed chair Powell’s term and mounting concerns over the central bank’s independence. One quarter into the year, we’ve added to that list of worries an energy crisis brewing amidst war in the Middle East, rising fear of AI’s existential threat to American jobs and even entire industries—think “SaaSpocalypse”—not to mention references to “recession” and “stagflation” creeping back into the market chatter.
But how seriously are investors really taking the range of risks staring down markets in 2026?
One way of answering that question is by looking at something called the equity risk premium, a tool economists use when trying to explain how an investor setting his or her asset allocation ought to think about the balance between stocks and bonds in their portfolios. If we consider fixed income and equity securities simply as different ways of delivering cash flows to investors—interest payments on bonds versus earnings and dividends paid to common stockholders—then we might distinguish between these different instruments strictly in terms of the level of risk they bring to an investor’s portfolio. Continuing with that train of thought, it seems reasonable for an investor to wonder how much more “risky” equities will return than comparatively “safe” fixed income. The answer to that question is the equity risk premium.
In comparing the risk and reward of stocks and bonds, we need to put things on an apples-to-apples basis, and there are many ways to do that. Below, I’m plotting one version of that calculation. It’s pretty simple to assume the yield on 10-year US Treasuries represents a relatively low-risk bond return. For the US equity return, we take the forward P/E ratio of the S&P 500 Index and invert it, flipping it into an E/P ratio: the so-called “earnings yield,” which is like the “return” on stocks, if you assume that paying the stock price today entitles you to the company’s earnings at the end of the year—in the same way our annual Treasury yield is just the bond’s payout at the end of a year. Now we simply subtract the lower-risk bond yield from the higher-risk stock yield, and we have the “extra” return stocks are paying for the extra risk a stock investor is taking in the market (i.e., the equity risk premium).
Chart Above: Despite Looming Risks, Equity Investors Aren’t Asking for Much!
US Equity Risk Premium, Six-Month Moving Average, Jan. 2000 – Feb. 2026
Source: Rayliant Research, S&P 500 forward earnings yield, 10-year US Treasury yield, as of Feb. 28, 2026.
In the graph above, I’ve actually depicted the six-month moving average of the equity risk premium, which I believe helps iron out some of the noise of month-to-month price volatility and makes it a little easier to track. Looking at the chart, we can see that the equity risk premium fluctuates over time, and one interpretation of the ups and downs is that they’re telling us about investors’ changing sentiment toward risk. The premium is rising amidst the dot-com bubble burst, and to me, there’s a clear spike around the Global Financial Crisis, and another bump around the COVID crash. There are basically two things going on here: when the situation gets risky, stocks often fall—investors sell until the price implies a forward return attractive enough to buy again—and bonds rise, amidst a flight to safety and, often, central bank stimulus. That helps to explain why the equity risk premium sank so low post-pandemic, with stocks and rates both rising.
While the equity risk premium is clearly just one lens through which to view the economy and markets, it seems like a good one for the moment we find ourselves in today, with stocks still trading pretty close to all-time highs, even as the litany of risks I mentioned threatens the bull-market narrative. At the far right of the chart, we see that—with the exception of a blip in 2025 as stocks faced a short-lived sell-off in response to “Liberation Day”—the equity risk premium is mostly negative. In other words, not only are investors in stocks not receiving any extra return for risk, they’re actually paying for it. That doesn’t necessarily mean investors should avoid stocks: earnings growth can raise the equity risk premium just as well as falling prices. It does suggest, however, that those “buying the dip” today are taking a much greater leap of faith than in times past when it comes to earning the bonus yield that makes such extra risk worth taking.
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. The equity risk premium (“ERP”) is a framework, not a forecast, and may not fully capture market dynamics. Forward P/E and E/P are hypothetical constructs and do not guarantee returns.
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.