Good morning investors,
The S&P 500 closed at 6,967 yesterday. The all-time high close of 6,978.60, set on January 28, is now less than 12 points away. After everything we have been through over the past seven weeks, record highs are back in sight.
On Tuesday, the S&P 500 gained 1.2%. The Dow rose 0.6%. The Nasdaq surged 2.0%. Oil fell. Gold rose. A cooler-than-expected wholesale inflation reading lifted spirits, and reports that a second round of US-Iran talks is under discussion added fuel to the rally.
A Moment to Breathe
It is time to take a deep breath now that the fear mongers can take a break.
I will be honest. It has been a lonely position to take the last few weeks during the war. Not joining in with everyone predicting the end of the world means you catch some heat for not aligning with the dramatization on financial media outlets. I called the bottom a few weeks back, and so far that has proven right.
I do not think we are completely off to the races. There will be volatility. But this is a win for the long-term investors who did not panic, who invested additional capital during the drawdown, who executed Roth conversions, who did tax-loss harvesting. Everything you look back and wish you had done in prior corrections, those who acted this time are now being rewarded.
The market is doing what markets do. It climbs a wall of worry. It punishes those who sell at the bottom. It rewards those who maintain discipline when headlines scream fear.
Opening Bell
This morning, futures are little changed as investors digest the remarkable run. S&P 500 ($SPY ( ▼ 0.23% )) futures, Nasdaq 100 ($QQQ ( ▼ 0.65% )) futures, and Dow ($DIA ( ▼ 0.03% )) futures are all marginally lower.
Big bank earnings continue this morning with Bank of America ($BAC ( ▲ 1.88% )) and Morgan Stanley ($MS ( ▼ 0.04% )). ASML and PNC Financial also report. March import and export price indexes arrive for those watching trade dynamics.
The Fed's Beige Book releases this afternoon, providing illustrative anecdotes from businesses around the country. Given the war's economic impact, this edition should offer valuable insight into how companies are navigating elevated energy costs.
President Trump told Fox Business this morning that the Iran war is "very close to over" with Tehran eager to agree to a peace deal. "We've beaten them militarily, totally," he said. "I think it's close to over, I view it as very close to over."
Trump predicted that when the war ends, "the stock market is going to boom, it's already booming." He told the New York Post that fresh talks in Islamabad "could be happening over the next two days."
US Central Command confirmed late Tuesday that the blockade of the Strait of Hormuz has been fully implemented, "completely" cutting off Tehran's international sea trade. The pressure campaign is working, which may explain why Iran appears eager to return to negotiations.
Technology Is Leading Again
I have been writing that technology had to take the lead for the next leg higher in this market. We are seeing exactly that.
The Technology sector just notched its ninth consecutive day of gains, its longest streak since December. This is the leadership that powered the last bull market returning to the front.
During the selloff from February 27 through March 30, which covered the start of the war, Energy was the only sector in the green with an 11% gain while tech fell 8%. Since the March 30 low, that script has completely flipped. Tech has jumped 14%, the best gain in the market, while energy has fallen 8%, the worst. Industrials, Consumer Discretionary, and Real Estate have also rebounded sharply, but the biggest leadership swing has come from the market's old growth winners.
Inside tech, semiconductors have done most of the heavy lifting. The iShares Semiconductor ETF has soared 27% during this nine-day rally, its best run over that span since November 2002.
Software had looked like the weak link for most of the move, but that changed Monday. The software sector ETF ripped higher and completed what technicians call a bear trap, briefly breaking below its February and March lows on Friday before surging back above them. That kind of reversal is often seen as a bullish sign.
This matters because it suggests the rally may be broadening inside tech, not just narrowing into chip stocks.
Nvidia Flashes a Rare Signal
Nvidia closed higher for the tenth consecutive session Tuesday, capping a 19% run from its March 30 low. According to ProCap Insights analysis, since 2016, only two prior 10-day win streaks match the current run. Both preceded explosive multi-month rallies.
The first occurrence happened in December 2016. Nvidia traded flat for about three months after its winning streak ended before surging 80% over the next 12 months. Then in November 2023, shares similarly moved sideways for several weeks before surging 48% over three months and 190% over the following year.
The setup today suggests bears should think twice before betting against Nvidia. Hyperscaler capex guidance keeps climbing. Blackwell demand continues to outrun production. Earnings estimates have barely moved while the stock has rallied.
While that last point might sound troubling, rallies that historically extend tend to move through a re-rating first before estimates catch up. That was the sequence in 2017 and 2024. It could well be the same now.
To be sure, two specific occurrences in a decade is a small sample. Nvidia entered both prior rallies at a fraction of its current $4.7 trillion market cap. For a company that size to move dramatically higher requires astronomical capital absorption that arguably has never been tested before.
Still, the bullish signal remains valid and historically rare. Investors looking for a moment to cut their AI exposure may want to hold off.
The Magnificent Seven Are Back
The valuations in some of the Magnificent Seven names were genuinely attractive a few weeks ago when I highlighted them. I think those names can continue higher into earnings.
Nvidia has jumped 14% since March 30 and is finally at a year-to-date high. Microsoft is up 7%. Amazon and Alphabet have been standout winners. Meta is digging itself out of its hole.
The next test is whether this leadership flip sticks or whether the next geopolitical jolt sends investors right back into the war trade. My base case is that the worst of the conflict uncertainty is behind us, which means tech leadership should persist.
I certainly don't believe the conflict is just over like that, but i think the worst is behind us, and I do think there are plenty of long-term opportunities for investors.
PPI Comes in Cooler Than Expected
Tuesday's Producer Price Index reading provided relief on the inflation front. Wholesale prices rose less than feared, suggesting that the energy shock's pass-through to broader inflation may be more contained than the worst-case scenarios predicted.
This is consistent with what I have been writing. The Fed is likely to look through this oil-driven inflation spike as temporary. If the conflict resolves and oil falls back toward the $80s on the futures curve, the inflation scare of the past six weeks will prove to be exactly what Fed officials have said: a supply shock that does not require a policy response.
The Ceasefire Holds, Talks Resume
A White House official told CNBC Tuesday that a second round of negotiations between Washington and Tehran is under discussion. Nothing has been officially scheduled yet, but the fact that both sides are willing to return to the table is the bullish signal that matters.
The pattern of the past seven weeks has been clear. Trump escalates, sets deadlines, then extends and negotiates. Iran postures, threatens, then comes back to the table. The rhetoric gets hot, but both sides ultimately want a resolution.
With the blockade now fully implemented and Iran's international sea trade completely cut off, the pressure on Tehran has intensified dramatically. That pressure appears to be working. Iran reached out to restart talks almost immediately after the blockade took effect.
Final Thought
Seven weeks ago, the US and Israel launched strikes on Iran and killed the Supreme Leader. The Strait of Hormuz effectively closed. Oil surged 70%. The S&P 500 fell into correction territory. Headlines screamed about stagflation, rate hikes, and economic collapse.
Today, the S&P 500 sits 11 points from an all-time high. The Nasdaq just posted its tenth consecutive day of gains. Technology is leading. The Magnificent Seven are back. And both sides of the Iran conflict are talking about resuming negotiations.
This is what discipline looks like. This is what maintaining conviction through volatility produces. This is why the playbook works.
I do not expect the path from here to be smooth. There will be setbacks, headline shocks, and moments where fear returns. But the trajectory is clear. Earnings are accelerating. Valuations have reset. And the market is demonstrating that it wants to go higher.
Stay disciplined. The playbook continues working.
As always, feel free to reach out with questions about navigating this environment.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
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.