Bears Wake Up after Tariff Driven Intra Day Reversal

Good Morning Investors,

August opens with heightened uncertainty as President Trump's trade deadline delivers sweeping tariffs across dozens of countries, while today's jobs report will test whether labor market resilience can offset policy-driven headwinds. Despite Microsoft's historic $4 trillion milestone validating our AI infrastructure thesis, mixed Big Tech earnings and tariff escalation created a challenging end to July's otherwise strong performance.

The market's binary response to yesterday's developments reinforces our framework: execution-driven companies weather macro volatility while policy uncertainty pressures broad indices. With futures down 0.9% this morning and Amazon sliding 7% on cloud growth concerns, today's jobs data becomes critical for Fed policy expectations.

Stock futures declined sharply Friday morning as investors digest Trump's modified tariff structure and mixed Big Tech results. S&P 500 ($SPY ( ▲ 1.54% )) futures dropped 0.9% while Nasdaq 100 ($QQQ ( ▲ 1.54% )) futures fell 1%, with Amazon's ($AMZN ( ▲ 3.1% )) 7% premarket decline offsetting Apple's ($AAPL ( ▲ 1.27% )) 2% gain following strong quarterly results.

The President's updated duties now range from 10% to 41%, with Canada facing a 35% levy effective midnight Friday - up from the previously threatened 25%. Mexico received a 90-day extension, but fruitless negotiations with India and Brazil mean higher costs for importers starting next week.

This policy-driven volatility validates our thesis that quality companies with pricing power outperform during uncertainty. Apple's resilience despite tariff pressures and Microsoft's margin expansion amid massive capex demonstrate the defensive characteristics of AI infrastructure leaders.

Microsoft's ($MSFT ( ▲ 0.59% )) entry into the $4 trillion club Wednesday night solidifies the new paradigm where AI monetization justifies premium valuations. Yesterday's consolidation represents healthy profit-taking rather than structural weakness, with the software giant's 18% revenue growth and Azure's $75 billion milestone establishing unshakeable infrastructure dominance.

Meta's ($META ( ▲ 2.12% )) explosive results - with AI driving "greater efficiency and gains across our ad system" - demonstrate how massive capex investments translate directly into revenue acceleration. The temporary macro-driven pullback creates attractive entry points for investors focused on long-term AI transformation.

These companies aren't just surviving the current uncertainty - they're using it to further separate from competitors. Quality AI infrastructure leaders continue building multi-decade competitive moats while weaker players struggle with execution challenges.

Today's 8:30 AM employment data carries outsized importance after Powell's Wednesday emphasis on unemployment trends. Consensus expects 110,000 jobs added with unemployment rising to 4.2% - both indicating healthy moderation rather than concerning weakness.

As Powell noted, "The main number you have to look at now is the unemployment rate." The expected tick higher from 4.1% would signal gradual cooling without triggering recession fears, potentially supporting September rate cut expectations despite recent hawkish Fed commentary.

Manufacturing PMI and consumer sentiment readings will provide additional labor market context, with ISM Manufacturing expected to improve slightly from June's 49.0 reading.

Trump's comprehensive tariff implementation exceeds our baseline expectations, with the effective US tariff rate now projected at 18% versus 2.3% last year. This marks a more aggressive approach than anticipated and carries clear stagflationary implications for the broader economy.

The 35% Canadian levy represents a significant escalation given the trading relationship's size, while the 40% surcharge on transshipped goods targets circumvention attempts. Court challenges to presidential tariff authority remain pending, creating ongoing uncertainty.

For investors, this reinforces our preference for companies with domestic revenue exposure and pricing power over import-dependent businesses.

Apple's unexpected strength - fastest revenue growth since 2021 - demonstrates resilience despite global trade tensions. iPhone sales rebounded sharply while management projected "mid to high single digit" growth well above analyst estimates, showcasing the premium brand's defensive moat.

Amazon's cloud story disappointed despite strong retail performance, with AWS growth failing to match Microsoft and Alphabet's AI-driven acceleration. This divergence highlights the importance of AI infrastructure positioning within the cloud hyperscale battle.

The contrast reinforces our thesis: companies successfully monetizing AI investments outperform those still building capabilities.

Yesterday's gap-up reversal in QQQ signals potential short-term topping action, with key support levels at $557 and $550. This policy-driven pullback provides opportunity for selective accumulation in quality AI infrastructure names.

Bull markets require healthy corrections, and current macro crosscurrents create normal consolidation conditions. Our constructive medium-term outlook remains intact while acknowledging near-term volatility.

August opens with increased complexity as tariff reality meets employment data scrutiny. Microsoft's $4 trillion validation and Meta's AI-driven advertising growth prove infrastructure leaders can navigate macro headwinds through execution excellence.

Today's jobs report will determine whether Fed policy expectations shift toward accommodation or remain restrictive. Combined with ongoing trade negotiations, volatility seems likely near-term while fundamentals support selective opportunities.

Key metrics to watch: unemployment rate trajectory, manufacturing activity, and continued AI revenue acceleration from infrastructure leaders.

August's opening tests whether AI infrastructure excellence can overcome policy-driven uncertainty. Microsoft's historic milestone and Meta's advertising efficiency gains validate our thesis that execution-focused companies build sustainable advantages despite macro volatility.

The combination of tariff implementation and employment data creates near-term complexity, but quality businesses with pricing power and growing market share historically outperform during such transitions. Today's jobs report provides crucial Fed policy direction as we navigate this evolving landscape.

Maintaining selective bullish positioning while respecting technical support levels offers the best risk-adjusted approach in this environment.

Dan Sheehan
[email protected]

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.