The market’s abrupt pirouette from sell-off to rebound has smoothed over the threat of a downtrend—at the cost of a few extra tremors. Sowell’s technical gauges remain composed and fully invested but not unblinking.
This past week felt less like investing and more like market navigation. We witnessed a dramatic emotional swing—from the panic of renewed trade wars to the grounded relief of solid corporate fundamentals—all set against a backdrop of murky economic data. The takeaway is clear: while the storms of geopolitics and rate uncertainty rage, the underlying economic foundation, supported by the corporate sector, remains robust.
The Great Geopolitical Head Fake and the Recovery
The week began in the shadow of the previous week's trade-war anxieties, but the market found its footing almost immediately. It only took a shift in presidential rhetoric—namely, President Trump damping down the immediate threat of new China tariffs and affirming his plan to meet President Xi at the upcoming APEC Summit—to trigger a massive relief rally. The result was a powerful reversal: the S&P 500 climbed +1.7% and the Nasdaq Composite, sensitive to all things trade and tech, surged +2.1%. This swift recovery confirms that a huge pool of capital is waiting to pounce on any temporary dip, provided the geopolitical risk is not immediately existential.
Early Q3 earnings season provided the necessary ballast for the rally, but not without revealing underlying stress.
The Big Winners: The largest financial institutions delivered record results on both the top and bottom lines. They demonstrated that diversification and scale in investment banking and wealth management are powerful engines of profitability, providing a crucial vote of confidence in the overall health of the capital markets.
The Caveat: However, this good news was immediately tempered by weakness in the regional banking space. Reports of problematic loans, especially among auto lenders, acted as a chilling reminder that credit risk remains a concern. As a result, the financial sector’s performance was, ironically, flat for the week, highlighting a clear divergence between the "haves" and "have-nots" in lending.
The Unstoppable Hedge and the AI Power Play
Two themes cut through the noise this week, driven by structural, long-term conviction:
Gold’s Ascent:
Amidst all the volatility and an ongoing government shutdown, the ultimate fear trade—gold—broke an all-time high, trading past $4,300 before settling at $4,213.
This sustained rise confirms that investors are using the precious metal as a heavy-duty hedge against escalating global uncertainty and potential currency debasement. Investors in Sowell’s MPD Series, Global Macro, and Liquid Alternative portfolios benefited from maintaining gold exposure—an allocation that proved both prudent and profitable.
The Utility Paradox: Counterintuitively, the seemingly boring Utilities sector remains the market's best performer, returning +26.7% YTD. This is not just a defensive trade; it's a structural necessity. The voracious, skyrocketing energy demand from the build-out of AI data centers is creating a powerful, long-term demand shock that is making the electricity providers some of the hottest growth stocks on the market.
Economic Crosscurrents: A Data Void and Manufacturing Mix
With the federal shutdown creating a frustrating void in critical labor statistics, we were forced to rely on a mixed bag of regional and business sentiment data to gauge the economy's pulse:
Good News/Bad News Manufacturing: We saw stark regional divergence. The NY Empire State Manufacturing index saw a massive rebound to +10.7, blowing past consensus. Yet, the Philadelphia Fed Manufacturing index plunged to -12.8, showing a steep contraction in the Mid-Atlantic. This confirms that the U.S. economy is not moving in lockstep—it's a highly segmented picture.
Small Business Concern: The NFIB Small Business Optimism Index declined to 98.6, signaling that the backbone of the American economy is struggling with rising costs and uncertainty, falling below last month’s modest optimism.
Despite these mixed signals, the outlook is not without support: the IMF raised its U.S. economic growth forecast to 2.0% for 2025, validating a belief in underlying resilience.
Ultimately, the key performance metric for the week was the solid earnings delivery: with 70% of reporting companies beating on revenue and an impressive 84% beating on earnings, the corporate engine is still firing.
The bond market is pointing to a likely rate cut ahead, with 30-year Treasury yields narrowing to 4.6, suggesting a less restrictive monetary policy environment is on the horizon.
Looking ahead, a critical mass of corporate earnings reports this week will illuminate the true depth of the economy beyond the well-capitalized tech and financial giants. The central question for investors is whether the foundational strength seen in Q3 earnings can translate into resilient forward guidance. We will gain crucial visibility into AI's return on investment, seeking tangible proof—not just promises—that this technology is materially improving corporate margins outside of its usual beneficiaries.
More importantly, will tariffs and persistent inflation manifest as a temporary "one-time event" the Fed believes it can see through, or will this drag on costs and capital spending be cemented into expectations, forcing a conservative, low-growth outlook for 2026 and beyond across the industrial, consumer, and energy sectors? The answers will not only define the direction of the equity markets but will also determine the state of the global landscape ahead.
“When capital goes up, machines and technology go up. It makes labor more productive and firms like productive workers and that is why they want to hire them. Because they don’t keep their output constant, they want to produce more. And they need both of these things to produce more output. This is what we have seen in the history certainly of the U.S. in the last 200 years. The capital stock in the U.S. is seven-times larger than it was in 1950 in terms of machines, equipment, everything. The unemployment rate is exactly the same. So employment grows with technology, it doesn’t go negative.”
—Federal Reserve Governor Christopher Waller, The Council on Foreign Relations – The C. Peter McColough Series, October 16, 2025
A.I. Brick & Mortar – Caterpillar
By Fiona Zhang
Caterpillar (CAT) has staged a remarkable rebound in 2025. Shares have climbed more than 45% year-to-date, and the company has captured attention — not just for its bulldozers and mining trucks, but for something a little less obvious: AI.
In the first half of the year, Caterpillar showed it still knows how to move the earth, both literally and figuratively. Revenues came in strong, with a $37.5 billion backlog sitting comfortably in its pocket. Cash has been flowing nicely too — $3.1 billion generated in Q2 alone, giving the company a war chest of $5.4 billion to invest, return to shareholders, and keep growth humming along.
But the real star of 2025 has been the Energy & Transportation (E&T) segment. Sales in Q2 jumped 7% year over year, powered by a surge in demand for generators and industrial engines. Why? Because data centers — the beating heart of AI — need enormous amounts of reliable power. Every time ChatGPT, MidJourney, or a cloud provider spins up new servers, someone’s got to keep the lights on. Enter Caterpillar. Its engines, generators, and microgrids are becoming unsung heroes of the digital economy. The Lafayette, Indiana expansion and partnerships with Hunt Energy and Joule Capital Partners are putting CAT right at the center of this boom. Analysts even think AI-related power demand could mean an extra $5 billion in revenue by 2030. Not bad for a company better known for earthmovers than algorithms.
Of course, it’s not all smooth terrain. Tariffs have become a growing weight for Caterpillar, which just raised its expected impact to $1.5–1.8 billion this year — a move that has weighed on its stock and hinted that profit margins may settle closer to the low end of its target range. And geopolitics love to complicate things. U.S.–China trade tensions, supply chain hiccups, and slowing infrastructure spending abroad all cast long shadows over the growth story.
Then came a curveball from Norway. Its massive sovereign wealth fund — the biggest in the world — decided to dump Caterpillar stock, claiming its equipment was being used in conflict zones in ways that violated humanitarian norms. The U.S. government pushed back hard, calling the move “illegitimate,” and some lawmakers even floated retaliatory tariffs on Norway. For Caterpillar, the direct financial impact is relatively minor. But reputationally, it’s a reminder that in today’s world, even a maker of tractors and bulldozers can get caught in the crossfire of global politics and ESG battles.
So where does that leave CAT? Right now, it’s both an industrial powerhouse and an unexpected play on the AI revolution. The company is still navigating tough terrain — tariffs, geopolitics, reputational risks — but it’s also building bridges into entirely new growth stories. Investors increasingly see it not just as a heavy machinery maker, but as a key enabler of the world’s AI-driven infrastructure. In short, Caterpillar has become a story of old-world grit meeting new-world tech. The road ahead has bumps, but the machine is still moving forward — and fast.
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.
WEEK AHEAD
October 20-24, 2025
From Rebound to Recalibration
This past week felt less like investing and more like market navigation. We witnessed a dramatic emotional swing—from the panic of renewed trade wars to the grounded relief of solid corporate fundamentals—all set against a backdrop of murky economic data. The takeaway is clear: while the storms of geopolitics and rate uncertainty rage, the underlying economic foundation, supported by the corporate sector, remains robust.
The Great Geopolitical Head Fake and the Recovery
The week began in the shadow of the previous week's trade-war anxieties, but the market found its footing almost immediately. It only took a shift in presidential rhetoric—namely, President Trump damping down the immediate threat of new China tariffs and affirming his plan to meet President Xi at the upcoming APEC Summit—to trigger a massive relief rally. The result was a powerful reversal: the S&P 500 climbed +1.7% and the Nasdaq Composite, sensitive to all things trade and tech, surged +2.1%. This swift recovery confirms that a huge pool of capital is waiting to pounce on any temporary dip, provided the geopolitical risk is not immediately existential.
Early Q3 earnings season provided the necessary ballast for the rally, but not without revealing underlying stress.
The Unstoppable Hedge and the AI Power Play
Two themes cut through the noise this week, driven by structural, long-term conviction:
Amidst all the volatility and an ongoing government shutdown, the ultimate fear trade—gold—broke an all-time high, trading past $4,300 before settling at $4,213.
This sustained rise confirms that investors are using the precious metal as a heavy-duty hedge against escalating global uncertainty and potential currency debasement. Investors in Sowell’s MPD Series, Global Macro, and Liquid Alternative portfolios benefited from maintaining gold exposure—an allocation that proved both prudent and profitable.
Economic Crosscurrents: A Data Void and Manufacturing Mix
With the federal shutdown creating a frustrating void in critical labor statistics, we were forced to rely on a mixed bag of regional and business sentiment data to gauge the economy's pulse:
The bond market is pointing to a likely rate cut ahead, with 30-year Treasury yields narrowing to 4.6, suggesting a less restrictive monetary policy environment is on the horizon.
Looking ahead, a critical mass of corporate earnings reports this week will illuminate the true depth of the economy beyond the well-capitalized tech and financial giants. The central question for investors is whether the foundational strength seen in Q3 earnings can translate into resilient forward guidance. We will gain crucial visibility into AI's return on investment, seeking tangible proof—not just promises—that this technology is materially improving corporate margins outside of its usual beneficiaries.
More importantly, will tariffs and persistent inflation manifest as a temporary "one-time event" the Fed believes it can see through, or will this drag on costs and capital spending be cemented into expectations, forcing a conservative, low-growth outlook for 2026 and beyond across the industrial, consumer, and energy sectors? The answers will not only define the direction of the equity markets but will also determine the state of the global landscape ahead.
A.I. Brick & Mortar – Caterpillar
By Fiona Zhang
Caterpillar (CAT) has staged a remarkable rebound in 2025. Shares have climbed more than 45% year-to-date, and the company has captured attention — not just for its bulldozers and mining trucks, but for something a little less obvious: AI.
In the first half of the year, Caterpillar showed it still knows how to move the earth, both literally and figuratively. Revenues came in strong, with a $37.5 billion backlog sitting comfortably in its pocket. Cash has been flowing nicely too — $3.1 billion generated in Q2 alone, giving the company a war chest of $5.4 billion to invest, return to shareholders, and keep growth humming along.
But the real star of 2025 has been the Energy & Transportation (E&T) segment. Sales in Q2 jumped 7% year over year, powered by a surge in demand for generators and industrial engines. Why? Because data centers — the beating heart of AI — need enormous amounts of reliable power. Every time ChatGPT, MidJourney, or a cloud provider spins up new servers, someone’s got to keep the lights on. Enter Caterpillar. Its engines, generators, and microgrids are becoming unsung heroes of the digital economy. The Lafayette, Indiana expansion and partnerships with Hunt Energy and Joule Capital Partners are putting CAT right at the center of this boom. Analysts even think AI-related power demand could mean an extra $5 billion in revenue by 2030. Not bad for a company better known for earthmovers than algorithms.
Of course, it’s not all smooth terrain. Tariffs have become a growing weight for Caterpillar, which just raised its expected impact to $1.5–1.8 billion this year — a move that has weighed on its stock and hinted that profit margins may settle closer to the low end of its target range. And geopolitics love to complicate things. U.S.–China trade tensions, supply chain hiccups, and slowing infrastructure spending abroad all cast long shadows over the growth story.
Then came a curveball from Norway. Its massive sovereign wealth fund — the biggest in the world — decided to dump Caterpillar stock, claiming its equipment was being used in conflict zones in ways that violated humanitarian norms. The U.S. government pushed back hard, calling the move “illegitimate,” and some lawmakers even floated retaliatory tariffs on Norway. For Caterpillar, the direct financial impact is relatively minor. But reputationally, it’s a reminder that in today’s world, even a maker of tractors and bulldozers can get caught in the crossfire of global politics and ESG battles.
So where does that leave CAT? Right now, it’s both an industrial powerhouse and an unexpected play on the AI revolution. The company is still navigating tough terrain — tariffs, geopolitics, reputational risks — but it’s also building bridges into entirely new growth stories. Investors increasingly see it not just as a heavy machinery maker, but as a key enabler of the world’s AI-driven infrastructure. In short, Caterpillar has become a story of old-world grit meeting new-world tech. The road ahead has bumps, but the machine is still moving forward — and fast.
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.