The Trump-Xi Summit may not have produced a headline-making breakthrough, but sometimes in markets, no bad news is good news. A little more breathing room on trade appears to have been enough for investors to regain their footing and for stocks to carry momentum into the end of the week. Meanwhile, our technical gauges remain steadfast—disciplined, composed, and fully invested.
Good News Isn’t Free: Stocks Rally, Bonds Send the Bill
Wall Street spent the week discovering that strong growth can be both support and a problem. Business activity accelerated, labor indicators remained resilient, and new capital-spending data gave investors more evidence that the AI buildout is reaching beyond stock prices. Wall Street liked the growth: the S&P 500 gained 1.2%, and the Nasdaq rose 2.0%. The bond market focused on the other side of the story. Treasury yields pushed to multiyear highs as stronger activity arrived alongside renewed cost pressures and oil above $100 a barrel. Good economic news is still good for earnings, but it is becoming increasingly expensive in the bond market.
The Weekly Scoreboard
The S&P 500 gained 1.2% for the week, and the Nasdaq Composite rose 2.0%, including a record close on Tuesday. The Dow finished roughly 0.3% higher. Friday itself was reasonably broad, with seven of the eleven S&P 500 sectors advancing. However, the month-to-date picture remains much weaker beneath the surface: eight of eleven sectors are still down in September, while the equal-weight S&P 500 has fallen about 4%. Large-cap technology continues to make the headline indexes look healthier than the average stock.
The contrast was clearest in Treasuries. From Friday to Friday, the two-year yield rose 5 basis points to 4.81%, the 10-year climbed 16 basis points to 5.17%, and the 30-year rose 15 basis points to 5.49%. The heavier move at the long end suggests investors are wrestling with more than just the next Fed meeting, although growth, inflation and longer-term risk premiums can all influence those yields. The 30-year briefly traded above 5.5% during Friday’s session.
Gold was down roughly 2% for the week in Friday trading as higher yields and a stronger dollar reduced its appeal. Brent crude remained another source of inflation pressure, settling Friday at $104.32 a barrel despite falling 2.1% on the day as U.S.-Iran negotiations raised hopes of a path toward reopening the Strait of Hormuz.
Growth Comes with a Rate Bill
September’s flash Composite PMI jumped from 56.0 to 58.4, the strongest reading since July 2021. Employment in the survey grew at its fastest pace in more than four years. But the same report contained the other half of the story: input-cost growth accelerated to nearly a four-year high, partly because of energy prices and tighter capacity. Weekly initial jobless claims also remained low at 197,000.
What matters about rates is not strong growth by itself. It is strong growth arriving while cost pressures remain stubborn. By Friday, futures markets were assigning a 66% probability to at least another quarter-point Fed increase in October, up from roughly 50% earlier in the week. That helps explain why stocks and bonds could look at the same economic data and come away with very different reactions.
AI Spending Shows Up in the Data
Friday’s durable-goods report added more substance to the AI-spending story. Core capital goods orders, a closely watched proxy for business equipment investment, rose 1.6% in August versus a 0.5% consensus estimate. Orders for computers and related products were up 20.1% from a year earlier, while communications-equipment orders rose 35.8%. The report does not mean every dollar of that spending came from AI—tax incentives and some tariff-related front-loading also contributed—but it adds evidence that the technology investment cycle is showing up in the broader economy.
The market rewarded the theme, too. Meta finished the week about 13% higher after the reception to its Muse AI agent, while Akamai gained Friday after announcing an $11.6 billion cloud-services agreement with Anthropic. That continued appetite for AI-related spending helps explain why Nasdaq held up even as bond yields moved sharply higher.
One Deadline Moved, the Bigger Questions Did Not
U.S. and Chinese officials agreed Wednesday, ahead of the Trump-Xi meeting, to extend their existing trade truce by two months to January 10. The leaders’ subsequent summit emphasized continued engagement but produced no major breakthrough on the larger disputes over trade and technology. For markets, the immediate tariff deadline has moved farther away; the underlying questions have not.
The Week Ahead
Next week brings three different tests of the same tension between growth and rates. August JOLTS arrives Tuesday, followed Wednesday by August PCE inflation—the Fed’s preferred inflation measure—and Micron’s fiscal fourth-quarter results. Micron provides a particularly timely check on the memory and AI-infrastructure spending story that helped support technology stocks this week.
Friday’s September employment report will be the main event. Economists surveyed by Reuters expect roughly 100,000 new jobs and a 4.2% unemployment rate. A substantially stronger reading could reinforce expectations for another Fed hike. At the same time, softer data would have to be weighed against whether they represent welcome cooling or a more meaningful loss of momentum. With long-term Treasury yields already above 5%, that distinction matters more than it did a few weeks ago.
“You can’t ignore the laws of economics and expect to come out ahead.”
— Howard Marks, Co-Chairman of Oaktree Capital Management, Shall We Repeal the Laws of Economics – Part III, September 2026
After the Barrel Reaches the Refinery…
By Affinity’s Fiona Zhang
Phillips 66 (PSX) and Valero (VLO) have had quite a run over the past few months. Both refiners have been among the strongest performers in Sowell-Affinity’s Mid-cap portfolio, and this time their stock performance has been backed by some impressive earnings.
At first glance, it's easy to blame the whole thing on oil. Oil prices have been elevated, geopolitical tensions have been everywhere, and energy stocks have been moving. But for refiners, the story doesn't end when the oil comes out of the ground.
What Is the Crack Spread?
It's all about the spread.
A refiner buys crude, runs it through a refinery, and sells the resulting gasoline, diesel, jet fuel, and other products. What matters is not simply whether crude oil goes up or down. It is whether the products coming out of the refinery are becoming more valuable faster than the crude going in.
That difference is what the industry calls the “crack spread.” And lately, that spread has been doing a lot of the heavy lifting.
Geopolitical disruptions involving Iran and Russia have taken refining capacity and fuel supplies offline at a time when the global system was already operating with limited spare capacity. Diesel has been particularly tight. U.S. diesel inventories are running well below normal seasonal levels, while global diesel prices have climbed sharply. Reuters recently reported that U.S. diesel prices had surpassed $6 per gallon, with inventories at their lowest September level since 1982.
For refiners, that is a pretty favorable combination.
If you are PSX or VLO, you don't necessarily need oil prices to keep climbing. You just need the value of the finished products to remain high relative to the cost of your crude.
And the latest earnings showed exactly what that can do.
PSX reported $3.8 billion of adjusted earnings in the second quarter, compared with just $200 million in the first quarter. Its realized refining margin jumped to $24.08 per barrel from $10.11, while refinery utilization reached 96%. Management specifically attributed the improvement in refining earnings to higher market crack spreads.
VLO saw a similar jump. Refining operating income reached $4.5 billion in the second quarter, versus $1.3 billion a year earlier. Its refining margin increased to $23.62 per barrel from $12.35, while Gulf Coast margins more than doubled to $24.42 per barrel.
That's a pretty big change in the economics of the business.
Why Refined Products Are So Tight
The world doesn't have an unlimited supply of spare refineries sitting around waiting to turn on. When a refinery goes offline, or when a major exporter cuts shipments, someone else has to make up the difference.
Right now, there isn't much room to do that.
Refineries are already running hard, while geopolitical disruptions have made the global flow of refined products less predictable. Russia has restricted diesel exports following attacks on its refineries, while disruptions in the Middle East have reduced fuel shipments from an already important supply region. Global refining capacity is therefore being asked to do more at exactly the time when parts of that capacity are unavailable.
That helps explain why the refining stocks have responded so strongly. This isn't just an energy rally showing up in a different corner of the market. Companies are making substantially more money on each barrel they process.
When Strong Refining Margins Become a Political Problem
The same high fuel prices that are great for refiners aren't particularly popular with everyone else.
Diesel is especially sensitive because it is used heavily in trucking, agriculture and manufacturing. Higher diesel prices eventually work their way through the economy, from transportation costs to the price of goods on store shelves. Reuters estimates that U.S. diesel prices have risen 76% over the past year, significantly more than gasoline.
That has naturally attracted Washington's attention.
There has been discussion around restricting U.S. fuel exports to increase domestic supply and bring prices down. The problem is that the U.S. is also a major exporter of refined products. For refiners, exports aren't just a side business. They are part of how the market clears all the fuel that U.S. refineries produce.
So a policy designed to help consumers could also pressure the refining margins that have made PSX and VLO so profitable.
For now, the policy picture is still unsettled. Geopolitical headlines are moving quickly, and expectations around Iran, Russia, sanctions and fuel trade can change almost overnight. That uncertainty has started to show up in the stocks, with both PSX and VLO pulling back from their recent highs in the past week.
What Comes Next for Phillips 66 and Valero?
That doesn't necessarily make the story less attractive. In some ways, it makes the setup more nuanced. The market is now balancing exceptionally strong current earnings against more uncertainty around what those earnings could look like six or twelve months from now.
That's what makes the recent volatility worth watching rather than simply worrying about. A headline about Iran, Russia or U.S. fuel policy can move these stocks quickly, even though the underlying supply-and-demand picture may take much longer to change. If those headlines meaningfully reset expectations, the resulting price move could eventually create a very different entry point than the one investors saw during the initial rally.
For now, one thing is clear: the refining story has become much bigger than oil prices.
The next time you see crude moving higher, it may be worth looking further down the supply chain. Sometimes the real money isn't made from the barrel coming out of the ground. It's made after the barrel reaches the refinery.
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 28-October 2, 2026
Weekly Market Commentary:
Good News Isn’t Free: Stocks Rally, Bonds Send the Bill
The Weekly Scoreboard
Growth Comes with a Rate Bill
AI Spending Shows Up in the Data
One Deadline Moved, the Bigger Questions Did Not
The Week Ahead
After the Barrel Reaches the Refinery…
By Affinity’s Fiona Zhang
Phillips 66 (PSX) and Valero (VLO) have had quite a run over the past few months. Both refiners have been among the strongest performers in Sowell-Affinity’s Mid-cap portfolio, and this time their stock performance has been backed by some impressive earnings.
At first glance, it's easy to blame the whole thing on oil. Oil prices have been elevated, geopolitical tensions have been everywhere, and energy stocks have been moving. But for refiners, the story doesn't end when the oil comes out of the ground.
What Is the Crack Spread?
It's all about the spread.
A refiner buys crude, runs it through a refinery, and sells the resulting gasoline, diesel, jet fuel, and other products. What matters is not simply whether crude oil goes up or down. It is whether the products coming out of the refinery are becoming more valuable faster than the crude going in.
That difference is what the industry calls the “crack spread.” And lately, that spread has been doing a lot of the heavy lifting.
Geopolitical disruptions involving Iran and Russia have taken refining capacity and fuel supplies offline at a time when the global system was already operating with limited spare capacity. Diesel has been particularly tight. U.S. diesel inventories are running well below normal seasonal levels, while global diesel prices have climbed sharply. Reuters recently reported that U.S. diesel prices had surpassed $6 per gallon, with inventories at their lowest September level since 1982.
For refiners, that is a pretty favorable combination.
If you are PSX or VLO, you don't necessarily need oil prices to keep climbing. You just need the value of the finished products to remain high relative to the cost of your crude.
And the latest earnings showed exactly what that can do.
PSX reported $3.8 billion of adjusted earnings in the second quarter, compared with just $200 million in the first quarter. Its realized refining margin jumped to $24.08 per barrel from $10.11, while refinery utilization reached 96%. Management specifically attributed the improvement in refining earnings to higher market crack spreads.
VLO saw a similar jump. Refining operating income reached $4.5 billion in the second quarter, versus $1.3 billion a year earlier. Its refining margin increased to $23.62 per barrel from $12.35, while Gulf Coast margins more than doubled to $24.42 per barrel.
That's a pretty big change in the economics of the business.
Why Refined Products Are So Tight
The world doesn't have an unlimited supply of spare refineries sitting around waiting to turn on. When a refinery goes offline, or when a major exporter cuts shipments, someone else has to make up the difference.
Right now, there isn't much room to do that.
Refineries are already running hard, while geopolitical disruptions have made the global flow of refined products less predictable. Russia has restricted diesel exports following attacks on its refineries, while disruptions in the Middle East have reduced fuel shipments from an already important supply region. Global refining capacity is therefore being asked to do more at exactly the time when parts of that capacity are unavailable.
That helps explain why the refining stocks have responded so strongly. This isn't just an energy rally showing up in a different corner of the market. Companies are making substantially more money on each barrel they process.
When Strong Refining Margins Become a Political Problem
The same high fuel prices that are great for refiners aren't particularly popular with everyone else.
Diesel is especially sensitive because it is used heavily in trucking, agriculture and manufacturing. Higher diesel prices eventually work their way through the economy, from transportation costs to the price of goods on store shelves. Reuters estimates that U.S. diesel prices have risen 76% over the past year, significantly more than gasoline.
That has naturally attracted Washington's attention.
There has been discussion around restricting U.S. fuel exports to increase domestic supply and bring prices down. The problem is that the U.S. is also a major exporter of refined products. For refiners, exports aren't just a side business. They are part of how the market clears all the fuel that U.S. refineries produce.
So a policy designed to help consumers could also pressure the refining margins that have made PSX and VLO so profitable.
For now, the policy picture is still unsettled. Geopolitical headlines are moving quickly, and expectations around Iran, Russia, sanctions and fuel trade can change almost overnight. That uncertainty has started to show up in the stocks, with both PSX and VLO pulling back from their recent highs in the past week.
What Comes Next for Phillips 66 and Valero?
That doesn't necessarily make the story less attractive. In some ways, it makes the setup more nuanced. The market is now balancing exceptionally strong current earnings against more uncertainty around what those earnings could look like six or twelve months from now.
That's what makes the recent volatility worth watching rather than simply worrying about. A headline about Iran, Russia or U.S. fuel policy can move these stocks quickly, even though the underlying supply-and-demand picture may take much longer to change. If those headlines meaningfully reset expectations, the resulting price move could eventually create a very different entry point than the one investors saw during the initial rally.
For now, one thing is clear: the refining story has become much bigger than oil prices.
The next time you see crude moving higher, it may be worth looking further down the supply chain. Sometimes the real money isn't made from the barrel coming out of the ground. It's made after the barrel reaches the refinery.
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.