Stocks hit a bit of an air pocket over the past week, but the turbulence was short-lived. US equities are heading into midyear up a respectable 8.6%, as measured by the Morningstar US Market Index. That’s not too bad, considering the Iran war, the resulting spike in oil prices, and the swing in expectations to the Federal Reserve hiking rather than cutting interest rates before the year’s end.
For all the talk about mega-cap stocks, as we wrote about last week, 2026 is shaping up to be a decent year for small-company stocks. But mid-cap stocks are actually leading the charge. In this week’s Markets Brief, we’ll look at the names at the front of the mid-cap rally, as well as Morningstar analysts’ latest thoughts on utilities stocks and oil refiners. Lastly, there’s a quick look at expectations for the June jobs report, which will be coming out Thursday in the holiday-shortened week.
Mid Cap’s March Higher
Mid-cap stocks (those with market capitalizations of $14.6 billion-$83.4 billion) generally don’t get much attention. The Magnificent Seven (which have market caps in the trillions) and large-cap stocks dominate market returns, while small caps are a perennial “Wait until next year” story. But the middle child of the stock market is coming into its own this year, coming close to tripling the gains on large-cap stocks in 2026 so far.
Not too surprisingly, the artificial intelligence trade is fueling the gains. In particular, there are the memory stocks that have seen massive gains in recent months. Out of the 16.8% return on the Morningstar US Mid Cap Market Index, which has 402 stocks, four hardware names are responsible for nearly a third of the gain. That includes SanDisk SNDK, which contributed 2.17 percentage points of the year-to-date return, along with Marvell Technology MRVL and Western Digital WDC at 1.31 points, and Seagate Technology STX at 1.27 points. The reason for their outsize influence? They’re all members of the triple-digit club.
Best Utilities Stocks for the Data Center Buildout
The thousands of data centers planned for the United States require vast amounts of electricity. That need has transformed many utilities stocks from sleepy dividend payers that are seen as a proxy for bond investments into growth stories. However, the sector took a slide earlier this year and has only recently started to recover.
Morningstar senior equity analysts Travis Miller and Andrew Bischof think this stalling of the utilities rally presents investors with an opening. “Utilities’ pullback offers buying opportunities for the first time since early 2025,” they wrote in a new report this past week. “A generational revival of energy demand and earnings growth is coming.”
The analysts forecast that electricity demand from data centers will quadruple by 2030 and grow sixfold by 2035—double their forecast from a year ago. They predict that data-center-related electricity demand could make up 24% of total US electricity demand by 2030, and possibly 34% by 2035.
At the same time, their top energy picks are trading at or below their fair value estimates, due to what they see as the lackluster expectations elsewhere on Wall Street. However, “with new and larger data center announcements every day, we expect consensus to move toward our estimate as other forecasts incorporate the latest developments.”
In the longer term, Miller and Bischof see energy demand slowing after 2030 as data centers become more energy-efficient, in part as the emphasis shifts from power-hungry model training to queries that put less demand on the system. In the meantime, their utilities picks “offer the best value for investors who want exposure to the data center growth theme.”
Here’s a look at their top picks:
Alliant Energy LNT
- We estimate Alliant’s annual earnings growth at the high end of management’s 5%-7% guidance through 2027, and more than 7%-plus growth in 2027 and beyond. Our view is driven by our expectations for significant data center investments beyond its base plan.
- Management was able to quickly pivot data center investments from Wisconsin to Iowa after stakeholder pushback. Significant opportunity remains across the Iowa jurisdiction.
American Electric Power AEP
- American Electric Power plans to invest $78 billion in 2026-30 and has identified another $10 billion of possible incremental investment, of which we expect management to execute on, pushing growth beyond 9%.
- We think the market should appreciate management’s strong execution over the past couple of years, where the company has consistently increased and delivered on growth opportunities.
DTE Energy DTE
- We assume 7% average annual earnings growth through 2030, with the potential to trend above 8% if DTE secures a third hyperscaler data center customer later this year. DTE’s $36.5 billion investment plan in 2026-30 could go 20% higher.
- Data center revenue could allow DTE to forego customer rate reviews and pass along rate benefits while investing to improve reliability and grow earnings.
Evergy EVRG
- We assume 6% average annual earnings growth over the next two years, but that should accelerate to over 8% in 2028 as data centers in Missouri and Kansas ramp up.
- Evergy has among the largest large-load customer growth opportunities for utilities of its size. Projects in development and final stages could double the current system demand. Management’s five-year, $22 billion investment plan supports our growth outlook.
Are Refinery Stocks a Buy After a Peace Deal Drop?
While the situation around the peace deal to end the Iran war remains murky at best, oil prices have fallen back toward prewar levels and taken with them some of the energy stocks that had ridden the spike higher. However, Morningstar senior analyst Allen Good notes that many refiner stocks are still up 40%-50% this year. How should investors be thinking about these stocks now?
On the one hand, Good wrote in a new report that he believes US refineries have a greater advantage than their European counterparts thanks to far better access to alternative crude supplies and more stable gas prices. This enables domestic refineries to “fully capitalize on globally strong refining margins” and keep costs low, he said.
In addition, the demand landscape looks favorable for US refiners: “US demand remained relatively stable, further supporting margins. Strong export markets, particularly for diesel, gave additional support. Heading into the summer driving season, demand should benefit from the recent decline in oil prices, even as strong margins continue to push prices higher. The lower prices also remove a key risk of demand destruction that would offset the otherwise favorable conditions.”
While those fundamentals look strong, valuations are another story. Good writes that “the market is continuing to price in an unrealistically high long-term refining margin assumption … However, our valuations remain anchored on a long-term reversion to midcycle levels, leaving shares fully valued or outright overvalued.”
Among the integrated refiners on Morningstar’s coverage list, HF Sinclair DINO and Phillips 66 PSX are fairly valued with 3-star ratings. However, Valero Energy VLO and Marathon Petroleum MPC are in 2-star, overvalued territory.
Jobs Data on Deck
With the Fourth of July holiday being observed on July 3, the monthly jobs report has been displaced to Thursday. The last time around, the data was a shocker, with May showing a 183,000 payroll increase, much stronger than expected. The early read this time around is for a slowing of payroll growth; economists forecast a more moderate but still-healthy 75,000 gain. We’ll have a closer look at what economists predict on Tuesday.
