I'm Dan Sheehan, a wealth advisor / financial planner based in Charlotte, NC. I work with high earners, families, and business owners on the things that actually move the needle over a lifetime: building the plan, managing the portfolio, and getting the tax picture right. Most of my clients came to me knowing they were doing well but suspecting they were leaving something on the table. Usually they were. This newsletter is where I share the thinking behind that work, one topic at a time.
Good morning investors.
Writing to you from Corfu on what may be the single most consequential day of this earnings season. The Fed decides this afternoon, Microsoft and Meta report after the close, and the chip selloff that has run all month refuses to let up. Then add in oil turning back higher on renewed fighting, and there is a lot moving at once.
Futures are mixed and quiet ahead of it all, with the S&P slightly higher and the Nasdaq a touch lower. Yesterday split the same way, the Dow climbing more than 500 points for its third straight gain on the back of cheaper oil, while the Nasdaq closed lower for a fifth session as the semiconductors dragged. Overnight the war flared again with Iran launching a ballistic missile attack on US forces in the region that was intercepted, and the US and Saudi Arabia striking Iran-aligned sites in Iraq. Oil jumped better than 3%, with WTI back around $82 and Brent near $87, and the two day ceasefire that lifted markets to open the week is already in question.
The Fed Is a Genuine Coin Toss
Today's decision is one of the most uncertain in years and the markets have the odds of a hold at roughly 70% and a hike at 30%, which makes this meeting an anomoly. For nearly every meeting since 2020, the outcome was close to settled going in, with the market 99% sure of the result. Warsh has changed that by stripping out the forward guidance that used to telegraph these decisions, so we walk in with far less direction than we are used to.
My expectation is that the Fed holds. The case for a hike rests on inflation, and the inflation we have is largely supply driven, coming from an oil shock tied to the war and from tariffs. Those are not the kind of pressures rate hikes address well. A higher policy rate does nothing to reopen the Strait of Hormuz or unwind a tariff. The energy spike is more sensibly treated as a temporary event than a structural shift in the inflation trend, the labor market has been softening, and American households are already stretched by high borrowing costs. Raising into that would be a hard choice to justify. Warsh has said he wants a real debate among officials rather than a manufactured consensus, and he will likely get one, since the committee is genuinely split on whether to move this year. The decision itself matters, but I will be listening just as closely to how he frames the inflation problem, because that tells us where the path leads from here.
The Chip Selloff Goes Deeper
The semiconductor unwind took another hard leg overnight, and SK Hynix was the trigger. The company reported a blowout quarter, revenue up 257% and operating profit up 557% from a year ago, and the stock fell as much as 15% before closing down almost 10% in Seoul. The pattern is the one that has run through this whole season. A result can be enormous and still fall short of what the share price already assumed, and here the profit landed under what analysts had penciled in, which was all it took.
The damage spread across the region. Korea's Kospi shed 6%, Japanese names such as Kioxia and Tokyo Electron dropped 10% or more, and the US group had already been hit hard on Tuesday, with the semiconductor ETF off 3.5% and memory names like Micron, Sandisk, and Western Digital down high single digits or worse. That ETF has now given back better than 9% in a week.
Two things going on under the surface that I wanted to talk about here. SK Hynix ran a gross margin near 83% in the quarter, which does not happen in a market where demand is fading. That level of margin comes from customers competing over supply that is short, and the company backed it up by signing multiyear agreements with around ten customers and guiding to a shortage that persists. The froth leaving these stocks is a positioning story, driven by the leverage that piled into the Korean names, far more than a change in the fundamentals. The second point is that this is the reappraisal I have flagged for weeks. Once investors start to worry the hyperscalers are overspending, the chipmakers filling those orders begin to look like the ones left holding the bag rather than the winners, which is why Micron and AMD sold off Tuesday even as the broad market rose. The fear may prove overdone, and I think it will, but it is what is steering the tape right now.
Where I See the Opportunity
I have written all summer about expecting a pullback of somewhere in the region of 5 to 10% before the market pushes higher into the midterms, and we are now working through it. I would not hold out for an exact number, because these things trade in ranges rather than hitting a precise line, but the levels give a rough map. A 5% pullback from the recent high takes the S&P to around 7,185 and the Nasdaq to about 25,570. A 10% move takes the S&P near 6,807 and the Nasdaq to roughly 24,225. Those are the zones where I would look to add exposure rather than pull back.
I do not think the tech trade is finished. Far from it. If we reach those levels, I expect to find real value in this market, particularly in the quality names at the center of the buildout that are being sold alongside the froth. A correction that resets stretched positioning and hands you better entry points is the friend of a long term investor, not the enemy. The demand underneath the AI story keeps confirming itself, the earnings engine is strong, and the midterm year pattern points toward a stronger back half once the election clears. So I am watching these declines with interest rather than anxiety, and treating the volatility as the setup it usually is rather than a reason to retreat.
The Case for Not Owning Just One Thing
Yesterday offered a small lesson that I talk about regularly to friends and clients. The S&P finished higher while the Nasdaq fell around 1%, a modest separation but it was actually a telling one. For most of the past two years those two moved together, carried by the same handful of megacap tech names, and a day where one rises while the other falls is a reminder that they are not the same market underneath.
This is the quiet argument for diversification, and it is easy to forget when everything climbs at once. In a rising tide, concentration looks like genius. Owning one soaring stock, or one country, or one sector, beats a balanced portfolio handily right up until it doesn't. The trouble is that the same concentration that powers the returns on the way up is exactly what hurts most on the way down, and you rarely get to choose the timing. A portfolio spread across asset classes cushions the days when equities wobble, because not everything moves together. A portfolio spread across regions means a selloff in US tech does not sink the whole ship, especially when international markets trade at more reasonable valuations and are driven by different forces. And a portfolio spread across individual names means no single earnings miss, no single SK Hynix moment, defines your year.
None of this shows up as an advantage while the concentrated bet is winning. It shows up on the hard days, and it shows up over full cycles, which is the only timeframe that matters. The point of diversification was never to beat the hottest stock in a good year. It is to still be standing, and still compounding, through the years that are not good. When I look at the record allocations to equities and the sheer concentration sitting inside the average index fund today, that lesson feels more relevant than it has in a long while. Anyone whose wealth rides heavily on a single company, or a single corner of the market, is carrying more risk than the recent calm suggests, whether or not it has cost them anything yet.
The Megacaps Have to Answer the Spending Question
Everything converges tonight when Microsoft and Meta report. After Alphabet was sold off for lifting its capex despite strong results, these two step into a market primed to punish the same. Microsoft is expected to have spent around $35 billion on capex in the quarter, roughly double a year ago, and the read on it will hinge on Azure. Cloud growth in the high 30s or better would help calm the spending nerves. Anything softer, against that level of investment, invites the Alphabet treatment. Meta carries the same tension, with capex set to double and a planned spend north of $145 billion this year, most of it on data centers, including a new $14 billion site with BlackRock announced Tuesday.
What I want from both is the same proof Google actually delivered, spending that converts into revenue and profit rather than spending on faith. Meta has an interesting wrinkle, having debuted a new model priced far below what OpenAI and Anthropic charge, a move that could win share among cost-conscious customers even as it pressures the whole model layer on price. There is a simpler frame worth keeping in mind through all of this. Both Microsoft and Meta were formidable profit machines before the AI boom began. If the market decides the spending is excessive, it is worth remembering how much these businesses earned without it.
Final Thought
Today brings the Fed, two of the largest companies on earth, and a chip complex in the middle of a violent repricing, all against a war that reignited overnight. That is a lot for one session, and the market knows it. Beneath the noise, the relief of easing oil and yields earlier in the week was real, and the selling in the chips has more to do with leverage and lofty expectations than any break in the underlying demand.
The pullback I have expected through this midterm summer could be playing out, and rather than fear it, I am watching for the levels where quality goes on sale. The earnings engine remains strong, diversification is quietly proving its worth, and the path higher into year end stays intact even through a stretch this choppy.
The Fed this afternoon, Microsoft and Meta after the close, and a heavy slate of earnings all day. If any of this has you wondering whether your portfolio fits your goals rather than the day's headlines, that is a conversation I am always glad to have.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.