Good morning investors, and an early happy Independence Day to all of you.
Before we get to the market, allow me a personal word as we approach the Fourth, and this being the 250th birthday of the nation makes it feel especially meaningful. As many of you know, I came to America from Britain, and I will happily absorb all the inevitable jokes about British defeat that come my way this weekend. What I have learned living here, though, is something I hold with genuine conviction, that this is a country where you can truly achieve anything. The idea that where you start does not determine where you finish, that effort and ambition can carry you regardless of pedigree or connections, is not a cliché here. It is real, and I have felt it firsthand building a life and a practice in a place that rewards people willing to work for it. That spirit, the same one that turned a set of colonies into the most dynamic economy on earth, is worth celebrating this weekend. I am grateful to call it home.
Markets close tomorrow for the holiday, so this is the final edition of the week.
A First Half for the Record Books
We turned the calendar on a genuinely remarkable six months. The S&P returned 9.5% in the first half, almost exactly its long term average annual return dating back to 1950, except it delivered a full year's worth of gains in half the time. What makes it more impressive is everything the market shrugged off along the way, with the Iran conflict nearly dragging the index into correction territory, a changing of the guard in leadership away from the Magnificent Seven, resurgent inflation, persistent AI bubble fears, and violently whipsawing oil.
Zoom out globally and the story rhymes, with the all country world index dropping 2.2% in the first quarter and then rallying 13.4% in the second. Asset prices have wasted no opportunity to prove their resilience, and that ability to withstand and simply ignore geopolitical and economic surprises tells you something durable about the underlying trend.
Wednesday broke the winning momentum, though modestly. The Dow erased a 423 point jump to record highs and closed just below flat, while the S&P fell 0.2% and the Nasdaq 0.7% as investors pared chip positions. The semiconductor ETF dropped 5.4%, with Micron and SanDisk both off more than 10%, and the selling carried into Asia overnight, where the Kospi plunged nearly 8% to its lowest close since early June, led by a 14.6% collapse in SK Hynix. Futures here are hovering around the flatline this morning as everyone waits for one number.
All Eyes on Jobs
The June employment report arrives at 8:30 this morning, and it is the event that shapes not just today but the Fed's path into the fall. Economists expect around 115,000 jobs, a step down from May's sturdy 172,000. The wrinkle worth knowing is that Goldman thinks the print could surprise to the upside thanks to the World Cup, estimating the tournament added roughly 40,000 positions concentrated in leisure, hospitality, and transportation across the eleven host cities. Goldman also notes that initial June counts have been revised lower in each of the past four years, so the first estimate may carry an upward bias.
Yesterday's ADP report muddied the picture, coming in at 98,000 private payrolls against the 120,000 expected. ADP's economist made an observation I found telling, that the friction is running both ways, with workers struggling to get hired and some industries simultaneously struggling to hire. That said, the broader labor data has been firm, with job openings rebounding to their highest since May 2024 and the ratio of openings to unemployed workers back to one-to-one. A hot payrolls number this morning would hand the inflation hawks fresh ammunition and firm up the case for a Fed hike, while a soft one would complicate Warsh's task. The market will not have to wait long to find out.
The Chip Pullback Is Healthy, Not Broken
The semiconductor selling that gripped the market Wednesday and hammered Asia overnight looks alarming on the surface, but I read this as a healthy feature of this bull market rather than a warning. Rotation has been the defining attribute of 2026, on full display all year, and a passing of the baton from the crowded commodity-like semis to non-commodity cyclical sectors would be further evidence that the market is entering the second half from a position of strength. Bull markets that rotate rather than roll over tend to run deeper into the year, not shorter.
The chips have outperformed the S&P by roughly 85 percentage points, a historic and frankly extended run, and a group that stretched can consolidate hard without the thesis breaking. My conviction in the structural memory story is intact after Micron's blowout, but I have consistently said I would rather add to the semis on weakness than chase them at the highs, and days like Wednesday are exactly what create those opportunities. The violent Kospi moves are the same story playing out in the most leveraged, most concentrated corner of the global chip trade, where positioning had built up to extremes. Sharp single session drops off a near vertical run are the signature of positioning being flushed, not of demand disappearing. Micron told us two weeks ago the demand curve is still steepening.
Meta Opens the Compute Store
The most interesting corporate development was Meta, which jumped 10% on reports it will begin renting out its massive compute capacity, a real departure from its history of keeping that firepower in-house to turbocharge Instagram and Facebook ads. Zuckerberg framed it carefully, noting that if the company ever felt it had overbuilt, selling excess capacity is an option, and that the ability to monetize the surplus actually backstops confidence in the entire buildout.
I think the market read this correctly, and the framing matters. If compute is the new oil, a company saying it cannot deploy all its capital might raise an eyebrow. Zuckerberg positioning it more like a release valve, a way to monetize a scarce and valuable commodity when internal demand does not consume every last chip, makes genuine business sense. It also speaks to the broader maturation of the AI economy, where compute itself is becoming a tradeable, revenue-generating asset. Nvidia moved in a related direction yesterday, launching revenue-sharing agreements that give fast growing startups token credits and compute access in exchange for a slice of future product and cloud revenue. These arrangements, where chipmakers and hyperscalers swap scarce compute for equity and revenue, are becoming the connective tissue of the whole ecosystem as AI firms navigate the enormous capital demands of the buildout.
Washington Wants a Seat at the Table
A development with real long-term implications surfaced this morning. OpenAI has reportedly proposed handing the US government a 5% stake, worth roughly $42.6 billion, as part of a broader arrangement in which Washington would hold 5% of each leading US AI developer through a sovereign-wealth-style vehicle. Altman's argument is that giving the public a financial interest is the best way to share the upside of AI. It is not clear whether Anthropic, Google, or Meta would agree to anything similar.
This connects to a theme that the political economy of AI is becoming as important as the technology itself. The Trump administration has already taken stakes in Intel, IBM, and various quantum and critical minerals companies, and the president has called government ownership in AI giants a beautiful thing that makes Americans partners in the revolution. The pressure is mounting from cybersecurity concerns and from cheaper, nearly as- capable Chinese open-source models. Worth noting on that front, Anthropic disabled access to its most advanced models last month to comply with an export-control directive and was cleared to restore access this week after resolving the government's safety concerns. However these arrangements shake out, the government is going to be an increasingly active participant in this industry, and that is a dynamic investors will need to price over time. It cuts both ways, offering political cover and support on one hand while introducing a new and unpredictable stakeholder on the other.
SpaceX Gets Its First Big Bull
Daniel Ives , the well known Tesla bull, initiated coverage of SpaceX with an Outperform rating and a $190 target, implying about 21% upside from Wednesday's close near $158 after the stock fell nearly 8% on the day. Ives frames SpaceX as a three legged bet on rockets, connectivity, and AI, potentially becoming a vertically integrated AI play through solar-powered data centers in space. He characterizes the heavy losses as an investment cycle rather than a business losing ground, while flagging the Starship launch vehicle as simultaneously the single largest source of value and the largest risk in the franchise.
I will reiterate what I have said since the IPO. The business has real assets and genuine long term promise, but I have counseled patience on the stock rather than chasing the post-IPO euphoria, and the round trip from $225 back toward $158 has borne that out. The float is still tiny, the lock-ups begin rolling off in the coming months, and the valuation prices a great deal of flawless execution on technology that does not yet exist. SpaceX joins the Nasdaq 100 on July 7, which means measured exposure reaches most portfolios mechanically regardless of any individual choice. That is precisely why I have favored letting the float settle over reaching for it at the open.
Oil and the Fragile Peace
Crude closed out a brutal June, with Brent down 21% on the month and WTI off more than 20%, both their worst months in years, and prices sit near $73 and $69 respectively this morning. US production actually hit a record 21.84 million barrels per day of total petroleum output in April, a reminder of how much supply resilience underpins the lower-price picture. The relief remains the quiet tailwind cushioning the consumer and inflation as we enter the second half.
The peace itself stayed fragile, which validates the caution I have carried throughout. Trump claimed Iran requested talks in Qatar, Iran denied any meeting was scheduled, and US envoys arrived in Doha to meet mediators rather than Iranians directly. As ING put it well, the market is treating a temporary ceasefire as a permanent deal, and that is clearly not the case, with a comprehensive agreement tackling the nuclear issue within the 60-day window looking very optimistic. This is exactly why I have suggested energy exposure as a sensible hedge. The base case remains resolution, driven by the political incentive to settle before the midterms, but the situation can change very quickly, as the last four months have shown repeatedly.
The Concentration You Didn't Choose
I wrote to my clients this week about the single most important planning point to come out of this first half, and it is worth sharing here because it affects nearly everyone reading this. The semiconductor group's historic run has done something quietly consequential to the index most people consider the definition of diversified. Semiconductors now make up close to 20% of the entire S&P 500, up from what was essentially a rounding error a decade ago. If you own a broad index fund, you are far more concentrated in a single theme than you were two years ago, and you never actually made that decision. The rally handed you concentration you did not choose.
For many of you, that hidden concentration stacks on top of concentration you can see. If you hold company stock through RSUs, an ESPP, or options at a technology or semiconductor employer, your paycheck, your equity compensation, and your index funds may all now be leaning on the same handful of forces. That is three bets on one outcome dressed up as a diversified life. None of this is a reason to abandon the theme, since I remain constructive on AI infrastructure. It is a reason to manage it deliberately, which means knowing your true exposure across every account, having a rules-based and tax-aware plan for trimming concentrated positions, and making sure the risk you carry is a risk you actually chose. After a half like this, portfolios drift toward whatever ran hardest, and rebalancing the winners back to target while adding to what lagged is simply buying low and selling high on autopilot. If you have not looked at your concentration across your whole balance sheet lately, that is the most valuable thing we could do together this summer.
Where I Net Out
The first half handed investors a full year's return in six months, and it did so while absorbing a war, an inflation scare, an AI-bubble panic, and a wholesale rotation in leadership. That resilience is the story, and it speaks to a market with a sturdier foundation than the one we had a year ago, when a handful of megacaps carried everything. The broadening we have watched all year, with small caps posting their best first half since 1991 and the Magnificent Seven finishing negative, is the healthiest possible base for a durable bull.
My posture into the second half is unchanged. I favor the contracted side of the AI build and profitable, domestically driven cyclicals ahead of a Q4 backdrop I believe is stronger than the market expects, I would rather let the extended semis come to me on weakness like we saw Wednesday than chase them, and I continue to see real value emerging in the beaten-down Magnificent Seven, where retail participation has fallen to a four-year low and the de-positioning looks overdone. I expect a volatile summer with big swings in both directions, and I would treat any extension of this chip pullback as the healthy, long-flagged reset rather than evidence anything has broken. Today's jobs report is the near-term swing factor, and the rotation into cyclicals that a soft number might accelerate would, in my view, be a sign of strength rather than weakness.
Stay invested, stay disciplined, and take some time away from the screens with the people you love. There is no better weekend to reflect on how much this country offers to anyone willing to reach for it. Happy 250th, America, and happy Fourth of July to you and your families. I will see you all next week.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
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.