Last week’s markets began with some turbulence but ended surprisingly calm, even with the Fed raising rates another 25 basis points. Inflation remains in the spotlight, and rising oil prices are hardly helping the backdrop. Yet, the market kept its composure—and so did our technical gauges, which remained steadfast, disciplined, and fully invested.
Markets looked like two different worlds this week. On one side, higher rates, renewed AI concerns, and sharp semiconductor selling created moments of real market carnage. On the other, the Nasdaq still managed to finish the week higher, as investors continued to favor the large technology companies they believe can withstand tighter financial conditions. The Fed raised rates, Treasury yields moved higher, and oil stayed near $100 a barrel — yet large-cap tech barely blinked. Same market, very different weather.
The Weekly Scoreboard
The S&P 500 slipped just 0.1% for the week, while the Nasdaq Composite gained 0.7%. The Dow Jones fell 1.7%, its worst week since March, and the Russell 2000 declined 1.5%. That gap tells more of the story than the S&P 500 alone: large technology companies held up, while smaller and more economically sensitive businesses struggled under higher rates.
The bond market reflected the Fed's message more clearly. The two-year Treasury yield climbed 13 basis points to 4.76%, while the 10-year rose 5 basis points to 5.01%. The 30-year yield actually eased 1 basis point to 5.34%. In other words, investors did not simply push every yield higher. The largest move came at the shorter end of the curve, where expectations for Fed policy matter most.
Oil remained another pressure point, but at least stopped accelerating. WTI settled at $100.30 and gained just 0.2% for the week, while Brent finished at $103.87, down 0.7%. Gold moved the other way, gaining roughly 1% for its first weekly advance in four weeks.
One Hike, and Probably Not the Last
Wednesday's Fed decision was unanimous. Policymakers raised the federal funds target range by 25 basis points to 3.75%–4.00%, the first increase in more than three years. More important than the hike itself was the message around it: the Fed described economic activity as solid, spending as resilient, and inflation as still elevated.
The Fed’s updated projections reinforced that message. Officials now expect 2026 GDP growth of 2.3% and unemployment of just 4.1%, while projecting headline PCE inflation at 3.7% and core PCE at 3.4%. The median year-end federal funds rate projection rose to 4.1%, consistent with roughly one additional quarter-point hike before year-end.
The juxtaposition is worth noting. The Fed is raising rates while simultaneously acknowledging that financial conditions are not yet restrictive. As Chairman Warsh put it at last week’s FOMC press conference, “I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee. So we removed a dose of accommodation.” In other words, the Fed appears to be tightening policy precisely because it believes the economy can absorb it—a somewhat curious way of removing accommodation while suggesting the financial system is already anything but constrained. For investors, the message is less about the 25 basis points and more about the Fed’s renewed willingness to lean against an economy that continues to show considerably more resilience than inflation would prefer.
The Consumer Refuses to Cooperate—with the Bears
Retail sales provided the clearest example. August sales jumped 1.2% after falling 0.5% in July, comfortably above the 0.8% increase economists surveyed by Reuters had expected. Even excluding autos and gasoline, spending remained strong.
Housing told a more complicated story. Single-family housing starts rose 7.6% in August, but permits for future single-family construction fell 1.8%. With mortgage rates again elevated alongside Treasury yields, builders appear to be looking at a stronger present and a less certain future.
That is the same tension facing the Fed: the economy keeps absorbing higher rates better than expected, which gives policymakers more reason to keep them high.
AI Gets Knocked Down, Then Gets Back Up
Technology had its own stress test this week. On Monday, the Philadelphia Semiconductor Index plunged 5.9% after leaders from Anthropic, OpenAI and xAI called for slowing the pace of advanced AI development because of safety concerns. Nvidia, Micron, Broadcom and AMD were all caught in the selloff.
Yet the Nasdaq finished the week up 0.7%.
That reversal may be the week's most interesting market signal. Investors were willing to punish the AI trade when its growth assumptions were questioned, but they were not yet willing to abandon it. For now, the same technology companies that helped the market tolerate higher rates are also the companies carrying the greatest expectations.
The Road Ahead
Next week will ask whether this week's rate hike marked the start of a longer tightening cycle—and whether the economy can keep absorbing it.
Fed officials are expected to speak following the meeting, giving investors their first chance to judge how broadly policymakers support further increases. September's preliminary PMI readings will offer another look at business activity, while August new-home sales arrive Thursday and durable-goods orders Friday. With the 10-year Treasury already sitting around 5%, even another solid round of economic data could be a mixed blessing: good for growth, but potentially another reason for rates to stay higher.
Also, President Donald Trump and Chinese President Xi Jinping are scheduled to meet in Washington on Thursday. Trade, rare-earth supplies, technology restrictions and artificial intelligence are among the many issues expected to be discussed, putting several of the market's biggest themes into the same room.
“Over time, staying invested has mattered far more than getting the timing right.”
— Larry Fink, Chairman and CEO of BlackRock, 2026 Annual Chairman’s Letter to Investors
Perspectives by Greg Lai, CFA, Affinity Investments
Maybe the Best Part of the Market Is the Belly
A friend of mine and fellow Sowell provider, Sterling Colyer of Advisors Asset Management, recently wrote an interesting piece about the “belly” of the yield curve.
His argument was fairly straightforward. Investors have been sitting in cash, waiting to see what the Federal Reserve will do next. But the bond market doesn’t wait for the Fed. It prices in what it believes the Fed will do before the Fed actually does it.
Sterling compared it to a city announcing that it will build a new highway exit. Property values near the proposed exit adjust when the announcement is made—not three years later, when the ribbon is finally cut. Anyone who waits for the exit to open may have more certainty, but they will probably pay a higher price.
His point was that the belly of the yield curve may already offer attractive value. Investors can lock in yields on intermediate-term bonds that are higher than the peak short-term rate the market currently expects the Fed to reach.
Makes sense.
But as I read Sterling’s piece, I have to admit my mind went somewhere else. Korean BBQ. More specifically, grilled pork belly. Yum!
But after I stopped thinking with my stomach and started thinking with my brain, I wondered whether Sterling’s idea might apply somewhere else.
Does the stock market have a belly? And if it does, could there be an opportunity hiding there too?
Today, it seems like almost all the attention in the stock market is focused on the “ends.”
At one end are the mega-cap companies: the Magnificent Seven, AI, Death Star NVIDIA, and the handful of companies that increasingly dominate both the indexes and the headlines—great companies—and, in many cases, great investments.
At the other end are small-cap stocks. For years, we have heard that small caps are cheap, that they'll eventually come back, and that maybe this is finally their time.
Mega caps at one end. Small caps at the other. A barbell.
But what about everything in between? Call it the belly of the equity market—and, more importantly, still un-grilled.
These aren’t tiny companies waiting to be discovered. Nor are they the mega-cap companies everybody already knows. They are established mid- and large-cap companies, many of them making plenty of money, growing earnings and improving their fundamentals.
But here is the interesting part.
Some of them can still be purchased at valuations that don’t require everything to go right.
Maybe Sterling is onto something.
One interesting thing about investing is that everyone can look at the same market and see something completely different. Today, market-cap-weighted indexes naturally direct more and more money toward the companies that have already become the largest.
As a company’s stock price rises, its weight in the index rises with it. And as more dollars flow into index strategies, more dollars are allocated to those same companies.
Market-cap weighting can reinforce momentum: success creates size, and one gets "more of the same."
Nothing wrong with that.
But does that mean the next opportunity has to be there?
Maybe not. This is where the belly gets interesting.
Plenty of companies outside the mega-cap names have more reasonable valuations and improving fundamentals. They don’t necessarily have the exciting story of the moment. CNBC may not talk about them every hour. Your neighbor probably isn’t telling you about one over Korean BBQ—or Mahjong, for that matter.
Good. Because sometimes the headline comes after the opportunity.
That is essentially what we have seen in our Flagship Equity strategy. The discipline is pretty straightforward: look for companies trading cheaply relative to their own earnings power while their fundamentals are improving.
Cheap alone isn’t enough.
Improving fundamentals alone isn’t enough. We want both.
This year, that meant owning a couple of technology and semiconductor companies months before the headlines made them famous. We weren’t reacting to stocks that were already moving. The valuation and improving fundamentals got us there first.
Chase the tape, and you’re already late to the point. Get there on the fundamentals, and you’re already standing at the net when the ball arrives.
And it has shown up on the scoreboard. Flagship Equity returned 17.51%, net of fees, in the second quarter of 2026, versus 15.20% for the S&P 500. Year-to-date through June, it returned 14.76%, compared with 10.21% for the index. The edge has also held over the trailing one- and three-year periods.
The broader market has been telling a similar—and surprisingly underreported—story. Through September 14, 2026, the Russell 1000 Value Index was up more than 22% year to date, while the Russell 1000 Growth Index was up a mere 2.8%.
Say it ain’t so! How is that possible with all the “news” surrounding AI and technology?
As always, past performance is not indicative of future results. So maybe Sterling’s observation about bonds tells us something about stocks too.
Investors tend to gravitate toward the ends. Today, it’s the biggest companies on one side and the promise of small-cap bargains on the other. In fact, it isn’t unusual to see investors significantly overweight small-cap stocks while remaining heavily exposed to the same mega-cap names that dominate the market-cap-weighted indexes.
But sometimes the interesting stuff is sitting in between Sterling calls it the belly of the yield curve. I’m beginning to think equities have a belly too.
And if you still don’t believe the belly can be the best part, have Korean BBQ with me. I’ll order the pork belly.
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
September 21-25, 2026
Last week’s markets began with some turbulence but ended surprisingly calm, even with the Fed raising rates another 25 basis points. Inflation remains in the spotlight, and rising oil prices are hardly helping the backdrop. Yet, the market kept its composure—and so did our technical gauges, which remained steadfast, disciplined, and fully invested.
Weekly Market Commentary:
Another One Couldn’t Hurt – Rate Hike
The Weekly Scoreboard
One Hike, and Probably Not the Last
The Consumer Refuses to Cooperate—with the Bears
AI Gets Knocked Down, Then Gets Back Up
Yet the Nasdaq finished the week up 0.7%.
The Road Ahead
Perspectives by Greg Lai, CFA, Affinity Investments
Maybe the Best Part of the Market Is the Belly
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.