AI Pullback & Fed Minutes Test Tech Rally's Resilience

Good Morning Investors

The market's pre-Jackson Hole consolidation accelerated Tuesday as artificial intelligence leaders dragged the Nasdaq 1.5% lower, while the S&P 500 declined 0.6% despite defensive rotation. The Dow managed a fractional gain backed by Home Depot’s strength. This is measured de-risking ahead of critical policy signals, not broad capitulation.

Today delivers another round of retail earnings and the July FOMC minutes, with Fed Governor Christopher Waller, a potential Powell successor, speaking at 11:00 AM ET. Investors will watch closely for evidence that July's unprecedented double dissent in favor of immediate cuts is gaining momentum inside the Committee. The mix of policy positioning and Jackson Hole timing leaves markets delicately balanced.

US futures are modestly lower: Dow ($DIA ( ▲ 0.02% )) -0.2%, S&P 500 ($SPY ( ▼ 0.27% )) -0.1%, Nasdaq 100 ($QQQ ( ▼ 0.59% )) -0.2%, as earnings from retailers hit before the bell and traders await Fed minutes. European equities are weaker on defense sector pressure. Asian markets mostly declined, with Japan’s Nikkei posting back-to-back losses while Chinese equities outperformed, reaching 2015 highs on easing trade tensions and regulatory support. The dollar is steady, gold hovers near three-week lows, and crude is firmer following API inventory draw data.

Markets still price an 85% probability of a September cut, followed by another in December. The “mega cut” narrative has faded in favor of a credible, measured easing path. The Fed’s challenge is balancing sticky services inflation with a slowing labor market without damaging credibility. The July dissent from Waller and Bowman, the first such double dissent since 1993, was a historic dovish signal. Today’s minutes will reveal whether that view is gaining traction.

Industrial policy is the other macro pillar. The proposed 10% US government equity stake in Intel, alongside SoftBank’s $2bn investment, marks rare public-private alignment aimed at securing AI hardware leadership and domestic semiconductor resilience. This is not bailout capital, it is strategic backing of a national champion.

Tuesday’s tech retreat, including Palantir’s 9% drop and weakness in AMD and Nvidia, fits our thesis of broadening leadership. Morgan Stanley notes Nvidia is the most under-owned megacap relative to its index weight, paradoxically setting up potential catch-up buying post-policy clarity.

Meanwhile, homebuilders, healthcare, and select industrials showed strength. This is “rotation across” rather than “rotation out” which is the healthiest pattern for sustaining a bull market.

Home Depot’s ($HD ( ▼ 1.34% )) Q2 miss hid a stronger July, and full-year guidance held firm, shares rallied 3%. Lowe’s ($LOW ( ▲ 0.3% )) beat estimates, announced an $8.8bn acquisition in the pro-contractor segment, and raised sales guidance.

Target’s ($TGT ( ▼ 6.33% )) second-quarter print landed almost exactly where I expected - EPS at $2.05, down nearly 20% from a year ago, and sales off 1.9% year-on-year despite topping consensus forecasts. The company held its full-year guidance for a low single-digit decline in comparable sales and adjusted EPS of $7–$9, which suggests no immediate inflection point. While digital sales were a relative bright spot at +4.3%, that’s still a modest pace for a channel that needs to carry more of the growth load. Margins remain pressured by markdowns, order cancellations, and a mix shift into lower-margin hardlines like electronics and toys, reinforcing my pre-earnings view that tariff exposure and cost pressures continue to bite.

The headline from the day, however, wasn’t the numbers, it was the CEO transition. Michael Fiddelke, Target’s 20-year veteran COO and former CFO, will succeed Brian Cornell in February. I’d noted at the last earnings call that Fiddelke was a likely contender for the role, though I also said I would probably have preferred an external hire to inject fresh ideas and drive change. His three stated priorities, restoring Target’s style leadership, delivering a more consistent customer experience, and using technology to run a leaner operation, align with the merchandising and execution gaps I flagged ahead of results. The challenge is whether an insider, however capable, can truly break from entrenched habits after four years of stagnant sales and a 60% share price drawdown from 2021 highs.

Investor sentiment remains fragile. Foot traffic has been negative most weeks since January, the Ulta Beauty partnership will wind down by 2026, and competitive pressure from Walmart and Amazon is as fierce as ever. Tariff-related headwinds also loom larger for Target than peers, given roughly half of its cost of goods comes from imports. Even with Fiddelke’s “urgency to rebuild momentum,” the path back to growth will require more than incremental tweaks, it will demand visible wins in merchandising, sharper pricing discipline, and measurable progress in high-margin ancillary businesses like advertising and membership. Until we see that in the numbers, I remain cautious.

Intel’s turnaround gained momentum Tuesday with SoftBank’s $2bn investment and reports of a potential US government equity stake via CHIPS Act grant conversion. Under CEO Lip-Bu Tan, Intel is repositioning for the AI era after six consecutive quarterly losses. The convergence of private capital and strategic government support creates a uniquely strong backdrop for regaining competitiveness in advanced semiconductors.

Last week’s reallocation from concentrated megacap tech toward equal-weight S&P 500 and small/mid-cap exposure has paid off in this pullback. IWM remains a preferred trade with a $250 target. If US tech continues to weaken into Jackson Hole, I will look to add back additional exposure to AI infrastructure positions - Q2 results confirmed monetization is still early-stage but does give me confidence that this will continue to expand and we can hit 7,000 by mid 2026.

I expect Powell to lean hawkish in tone Friday, which may keep markets cautious short-term, but I see this as positioning rather than a deterioration in the bullish backdrop. Technical trends are intact, and I'm watching to see if the ISM can get above 50. I expect two rate cuts this year (September and December) as my base case.

Baidu – Q2 revenue -4% YoY on ad weakness; AI cloud +34%; beat EPS expectations.

Estée Lauder – EPS guide $1.90–$2.10 vs. $2.21 consensus; $100m FY26 tariff headwind.

Lowe’s – Beat Q2; $8.8bn acquisition to grow pro-contractor business; raised sales outlook.

Target – Beat Q2; CEO transition to Michael Fiddelke; reiterated FY guide.

Keysight Technologies – Beat Q3; FY25 revenue guide +7%, EPS +13%.

Home Depot (HD) – Jefferies raises PT to $474 from $460 on stronger pro demand and SRS acquisition synergies.

Bath & Body Works (BBWI) – TD Cowen cuts PT to $38 from $48 on cautious guidance and margin pressures.

Brown-Forman (BF/B) – JPMorgan lifts PT to $30 from $28 on reduced currency headwinds.

Figma – Piper Sandler initiates Overweight, PT $85 on differentiated platform and AI-powered upside.

News Corp (NWSA) – JPMorgan raises PT to $40 from $38 on 2026 EBITDA growth and accelerated buybacks.

08:00 – Target Q2 earnings call

08:30 – MBA Mortgage Applications (prior +10.9%) 09:00 – Lowe’s Q2 earnings call

11:00 – Fed Governor Waller remarks

14:00 – FOMC July Meeting Minutes release Earnings: Target, Lowe’s, TJX, Baidu, Estée Lauder, Analog Devices, Nordson, Progressive

We are three sessions into a controlled retracement driven by positioning, not fundamentals. The backdrop remains bullish: technical trends are intact, ISM signals expansion, guidance revisions are positive, and Fed policy is moving toward measured easing. The “mega cut” talk is noise, the real story is gradual accommodation paired with targeted industrial policy, as seen in the Intel-SoftBank-US government convergence.

Jackson Hole will create volatility, but this is an opportunity to add exposure to sectors with pricing power, strong balance sheets, and secular tailwinds - AI infrastructure, healthcare innovation, and supply-chain sovereignty. Small and mid-caps remain well-positioned in a rate-cutting cycle, and current weakness should be viewed as an entry point, not an exit signal.

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Dan Sheehan

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This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.