September has seasonally earned its reputation as a more volatile month, and last week gave investors plenty of reasons to keep their seatbelts fastened. With inflation still in focus, oil prices rising, the upcoming FOMC meeting, and the China Summit on the calendar, the headlines may remain noisy. Our technical gauges, however, remain steadfast—keeping us focused, disciplined, and fully invested rather than reacting to every gust of wind.
A warning light on a dashboard does not always mean the engine is failing. It means the driver needs to pay attention.
Markets received several such warnings last week. Oil returned to triple digits, inflation accelerated, and Treasury yields approached multi-year highs. Yet the economy continued to show enough strength to avoid a broader breakdown. Together, the signals made investors increasingly confident that the Federal Reserve will have no choice but to raise interest rates in September.
The Weekly Scoreboard
Friday’s rebound softened the damage but did not erase it. For the week, the S&P 500 fell 0.8%, the Nasdaq Composite declined 0.7%, and the Dow Jones Industrial Average lost 1.6%. The Russell 2000 dropped 2.4%, showing that smaller, more rate-sensitive companies faced greater pressure than their large-cap counterpart.
The pattern reflected a repricing of interest rates rather than a collapse in corporate fundamentals. The 10-year Treasury yield rose roughly 17 basis points from the previous Friday to about 4.96%, after briefly approaching 5%. The 30-year yield reached 5.37%, its highest level since 2007, before settling at 5.35%
Stocks recovered Friday, with all three major indexes gaining close to 1%, as oil prices retreated and the CPI report avoided a larger upside surprise. The rally reflected relief that conditions had not become worse—not a reversal of the week’s inflation concerns. The VIX dropped 11% on Friday to 15.84, evidence that the relief, while real, was mostly about avoiding a worse outcome rather than confirming a better one.
The First Signal Arrived the Previous Week
Part of this week’s market reaction began with data released the previous week.
The August employment report showed that the economy added 162,000 jobs, nearly three times the 56,000 expected, while unemployment remained at 4.1%. Payroll estimates for June and July were also higher by a combined 55,000. The stronger labor market reduced the need for the Fed to protect economic growth and gave policymakers more room to focus on inflation.
The previous week’s ISM surveys told a similar story. Manufacturing remained in expansion territory, while the Services PMI rose to 55.4 and new orders reached their highest level in three and a half years. However, the services prices-paid index climbed to 72.6. Demand remained strong, but so did cost pressure.
Oil Turns Up the Heat
Energy delivered this week’s biggest shock. Brent crude settled at $104.61 and WTI at $100.05. Despite falling Friday, both gained more than 8% for the week as attacks along Middle Eastern shipping routes renewed concerns about oil flows through the Strait of Hormuz. U.S. diesel prices also climbed above $6 per gallon.
The inflation reports showed why that matters. The Producer Price Index rose 0.4% in August and 5.4% within a year. Goods prices increased 1.1%, led by energy.
Headline CPI also rose 0.4% in August and 3.4% over the year. Core CPI increased slightly, stronger-than-expected 0.3% for the month, although its annual rate eased to 2.4%. The Fed targets PCE rather than CPI, and the latest core PCE reading remained higher at 3.3%.
Consumers noticed the pressure as well. The University of Michigan’s preliminary sentiment index fell from 51.7 to 47.8, while one-year inflation expectations rose from 4.0% to 4.6%.
A New CEO's First Test, and China's Fingerprints All Over It
If you wanted a single company to illustrate the week, Apple volunteered. Wednesday brought John Ternus's first keynote as CEO, a week and a half after formally taking the reins from Tim Cook, and the headline act was Apple's first-ever foldable iPhone alongside the new 18 Pro lineup. The market's verdict on all that spectacle: a shrug. Apple shares closed the day down slightly, as investors focused less on the new hardware and more on the $100 price increase attached to it — a hike the company needs to keep pace with component and memory costs reportedly running about 38% higher than a year ago. Ternus got his big introduction. The stock treated it like just another Wednesday.
A bigger point is buried in that muted reaction, and it loops right back to this week's theme. Apple's entire cost structure and a meaningful chunk of its growth story run directly through China — the same relationship Trump and Xi are due to sit down over in less than two weeks. Rising memory prices, tariff exposure, and access to the Chinese consumer are all live variables the summit could move in either direction, and Apple, more than almost any other company in the index, has to build its roadmap without knowing which way they'll land. A new CEO's debut event getting drowned out by supply-chain math is a pretty tidy metaphor for a market — and a geopolitical relationship — still waiting on answers nobody's in a hurry to give.
The Summit Everyone's Bracing For, Not Betting On
Xi's visit — expected to run September 23-25, with the Trump meeting itself on the 24th — arrives against a genuinely complicated backdrop: an active Iran conflict, a Treasury Department openly targeting Tehran's trading partners with secondary sanctions, and a technology relationship that remains stuck on the same issues it's been stuck on for years. While analysts expect the two sides to preserve the informal 20% aggregate tariff ceiling reached earlier this year, make incremental progress on stalled trade and investment frameworks, and continue talking about AI safety and export controls without actually loosening them. China, for its part, wants protection from further U.S. tech and investment restrictions. Neither side appears to be walking in looking for a breakthrough — just an agreement to keep talking, and maybe pencil in the next meeting. But with the upcoming mid-term elections weighing on the Republican majority control, inflation relief from improved relations with China might be mutually beneficial.
The Road Ahead
The Fed concludes its two-day meeting Wednesday. Markets now assign a greater than 80% probability to a quarter-point increase from the current 3.50%–3.75% target range. Investors will want to know whether an increase is a one-time response to renewed inflation or the beginning of another tightening cycle.
Next week also brings retail sales, industrial production, housing starts, building permits, and weekly unemployment claims. Together, they will show whether higher fuel prices and borrowing costs are beginning to slow consumers, manufacturing, or housing.
The skunk at the party—and it could happen in 2026—would be inflation slowly going up.”
— Jamie Dimon, Chairman and CEO of JPMorgan Chase, Annual Letter to Shareholders, April 2026
Perspectives by Phil Wool, PhD
Is the Price of Home Bias on the Rise for Equity Investors?
“The combination of rapid economic growth, young populations, and a massive catch-up in technology means that the corporate champions of tomorrow are being built in these regions today.”
—Van Agtmael, economist who coined the term ‘Emerging Markets’
As students of behavioral finance, we’re always thinking about how the natural foibles of human psychology might lead to mistakes when implementing investment strategies. After all, our brains weren’t optimized to navigate financial markets, but to maximize our chances of survival in a world of dangers that predate Wall Street’s bubbles and crashes by many millennia! The premise of behavioral finance is simple: If only we could better understand how portfolio managers, advisors, and their clients think, the logic goes, it ought to be possible to avoid such ‘unforced errors’, build more robust portfolios, and thereby achieve much better investment outcomes. Along those lines, when it comes to asset allocation, perhaps the most impactful investment decision any advisor will make on behalf of clients, it seems that no behavioral anomaly is as pervasive as that of home bias: the tendency for investors to allocate disproportionately to their “home” market—for most reading this, that would be the United States—and forego equity opportunities abroad.
Some investors imagine that avoiding home bias requires underweighting U.S. stocks and overloading one’s portfolio with international equities. Happily, this is not the case. If an advisor were simply to invest by equity market cap, they would discover that almost two-thirds of their portfolio was allocated to U.S. stocks as a passive baseline. With a little research, they would find plenty of reasonable, data-driven weighting schemes that lead to even higher allocations to U.S. equities. Even so, we’ve run into plenty of advisors who take things to the other extreme, electing to hold only U.S. stocks, completely eschewing the broad set of investment opportunities—not to mention the simple diversification benefit—available in the world beyond America’s borders.
Such observations naturally lead to the question of how much home bias has historically cost advisors and their clients. Ironically, much to the chagrin of economists and institutional investors, most of whom regard under-diversification as a serious portfolio blunder to be avoided at all costs, one finds that for much of the last 15 years, home bias actually worked in investors’ favor—as long as they were American, that is—with U.S. stocks meaningfully outperforming those in markets across the rest of the world. An investment in the S&P 500 Index, for instance, returned almost 14% per annum from 2010 to 2024, while the truly global MSCI All Country World Index delivered just under 10%. That kind of performance differential naturally emboldened many investors to an even more entrenched distaste for stocks outside the United States. After all, shouldn’t we follow the data?
But of course, we all know that markets change, and the data keep coming. Along those lines, the last couple of years have brought a much different dynamic to conversations about global equity performance. Take stocks in emerging markets, for example: a particularly unloved geography among the home-bias crowd. It might surprise some readers to learn that from the beginning of 2025 through June of this year, EM shares have rallied by 66.6%, more than twice the 29.9% return for the S&P 500 over the same stretch. Not surprisingly, such comparisons have recently led more advisors and their clients to take a closer look at what they might be missing in the absence of an allocation to EM.
The answer to that question, it turns out, is quite different today than it would have been even a few years ago. Way back in 2000, when U.S. tech stocks were hitting record highs, investors rightly thought of EM as a highly cyclical play on materials, energy, and cheap manufacturing for export to developed economies. But over the last decade, the profile of EM has changed considerably, with rapid earnings growth coming not just from those traditional exports, but also increasingly from expansion of developing countries’ domestic demand for everything from communication services and health care to fintech and clean energy technology. Such earnings, because they’re less tied to developed markets’ business cycles, should naturally be a more diversifying source of growth.
Asian Emerging Markets Have Become an Essential Part of the AI Theme
Even EM exports have taken on a different character in recent years, moving from low-quality manufacturing of low-cost goods—think t-shirts and plastic phone cases—to advanced technology at the heart of AI datacenters, the likes of which companies such as TSMC, Samsung Electronics, and SK Hynix can’t seem to manufacture fast enough. Indeed, as the chart above illustrates, the current AI wave has carried Taiwanese and Korean stocks’ footprint to expand from less than a quarter weight in the EM index before the pandemic to over half of the index today. Add in China, and East Asian benchmark weight has likewise gone from less than one-fourth of the EM index at the turn of the century to more than two-thirds of the portfolio’s weight today.
The upshot of all this is that it’s actually hard to imagine constructing a truly complete exposure to the global economy—or even just the AI theme, for that matter—without venturing beyond America’s borders. The good news for investors considering an allocation to EM in search of broader access to global technology is that the MSCI EM Index is full of it, with 45% weight to IT stocks as of the end of June: even more than the S&P 500’s weight to tech of just under 38%. And whereas the S&P traded at a forward P/E of 22x at the end of June, the MSCI EM Index sold for just 13x forward earnings. Given stats like these, we wouldn’t be surprised to see more advisors putting a higher priority on diversification, setting aside home bias, and taking a more confident step into international equities.
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. Index data sourced from MSCI and S&P Dow Jones Indices as of June 30, 2026. Indices are unmanaged, cannot be invested in directly, and index returns do not reflect the deduction of any fees, expenses, or taxes. Past performance is not indicative of future results.
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 14-18, 2026
Weekly Market Commentary:
More Warning Lights on the Dashboard
The Weekly Scoreboard
The First Signal Arrived the Previous Week
Oil Turns Up the Heat
A New CEO's First Test, and China's Fingerprints All Over It
The Summit Everyone's Bracing For, Not Betting On
The Road Ahead
Perspectives by Phil Wool, PhD
Is the Price of Home Bias on the Rise for Equity Investors?
As students of behavioral finance, we’re always thinking about how the natural foibles of human psychology might lead to mistakes when implementing investment strategies. After all, our brains weren’t optimized to navigate financial markets, but to maximize our chances of survival in a world of dangers that predate Wall Street’s bubbles and crashes by many millennia! The premise of behavioral finance is simple: If only we could better understand how portfolio managers, advisors, and their clients think, the logic goes, it ought to be possible to avoid such ‘unforced errors’, build more robust portfolios, and thereby achieve much better investment outcomes. Along those lines, when it comes to asset allocation, perhaps the most impactful investment decision any advisor will make on behalf of clients, it seems that no behavioral anomaly is as pervasive as that of home bias: the tendency for investors to allocate disproportionately to their “home” market—for most reading this, that would be the United States—and forego equity opportunities abroad.
Such observations naturally lead to the question of how much home bias has historically cost advisors and their clients. Ironically, much to the chagrin of economists and institutional investors, most of whom regard under-diversification as a serious portfolio blunder to be avoided at all costs, one finds that for much of the last 15 years, home bias actually worked in investors’ favor—as long as they were American, that is—with U.S. stocks meaningfully outperforming those in markets across the rest of the world. An investment in the S&P 500 Index, for instance, returned almost 14% per annum from 2010 to 2024, while the truly global MSCI All Country World Index delivered just under 10%. That kind of performance differential naturally emboldened many investors to an even more entrenched distaste for stocks outside the United States. After all, shouldn’t we follow the data?
But of course, we all know that markets change, and the data keep coming. Along those lines, the last couple of years have brought a much different dynamic to conversations about global equity performance. Take stocks in emerging markets, for example: a particularly unloved geography among the home-bias crowd. It might surprise some readers to learn that from the beginning of 2025 through June of this year, EM shares have rallied by 66.6%, more than twice the 29.9% return for the S&P 500 over the same stretch. Not surprisingly, such comparisons have recently led more advisors and their clients to take a closer look at what they might be missing in the absence of an allocation to EM.
The answer to that question, it turns out, is quite different today than it would have been even a few years ago. Way back in 2000, when U.S. tech stocks were hitting record highs, investors rightly thought of EM as a highly cyclical play on materials, energy, and cheap manufacturing for export to developed economies. But over the last decade, the profile of EM has changed considerably, with rapid earnings growth coming not just from those traditional exports, but also increasingly from expansion of developing countries’ domestic demand for everything from communication services and health care to fintech and clean energy technology. Such earnings, because they’re less tied to developed markets’ business cycles, should naturally be a more diversifying source of growth.
Asian Emerging Markets Have Become an Essential Part of the AI Theme
Even EM exports have taken on a different character in recent years, moving from low-quality manufacturing of low-cost goods—think t-shirts and plastic phone cases—to advanced technology at the heart of AI datacenters, the likes of which companies such as TSMC, Samsung Electronics, and SK Hynix can’t seem to manufacture fast enough. Indeed, as the chart above illustrates, the current AI wave has carried Taiwanese and Korean stocks’ footprint to expand from less than a quarter weight in the EM index before the pandemic to over half of the index today. Add in China, and East Asian benchmark weight has likewise gone from less than one-fourth of the EM index at the turn of the century to more than two-thirds of the portfolio’s weight today.
The upshot of all this is that it’s actually hard to imagine constructing a truly complete exposure to the global economy—or even just the AI theme, for that matter—without venturing beyond America’s borders. The good news for investors considering an allocation to EM in search of broader access to global technology is that the MSCI EM Index is full of it, with 45% weight to IT stocks as of the end of June: even more than the S&P 500’s weight to tech of just under 38%. And whereas the S&P traded at a forward P/E of 22x at the end of June, the MSCI EM Index sold for just 13x forward earnings. Given stats like these, we wouldn’t be surprised to see more advisors putting a higher priority on diversification, setting aside home bias, and taking a more confident step into international equities.
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. Index data sourced from MSCI and S&P Dow Jones Indices as of June 30, 2026. Indices are unmanaged, cannot be invested in directly, and index returns do not reflect the deduction of any fees, expenses, or taxes. Past performance is not indicative of future results.
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.