Good Morning Investors,
Tuesday's modest retreat, with the S&P 500 ($SPY ( ▲ 1.54% )) down 0.5% and the Nasdaq ($QQQ ( ▲ 1.54% )) falling 0.7%, reflects healthy consolidation after Monday's powerful rally rather than a trend reversal. AI infrastructure leaders continue to show earnings resilience, while tariff uncertainty introduces selective positioning opportunities. The market's ability to hold technical support above key levels reinforces the view that conditions favor companies with proven AI monetization and strong domestic revenue exposure, supporting my year-end 6,500 target despite near-term volatility.
Futures are stabilizing with modest gains as investors digest mixed earnings and navigate an increasingly complex trade environment. Disney ($DIS ( ▲ 2.28% )) and McDonald's ($MCD ( ▲ 0.27% )) headline today’s earnings slate, while the semiconductor sector contends with AMD’s ($AMD ( ▲ 2.47% )) mixed results and Super Micro’s ($SMCI ( ▲ 3.71% )) disappointing performance. Trump’s announcement of a semiconductor tariff rollout "next week" adds further weight, but the fundamental AI transformation story remains intact. Quality continues to separate from speculation.
Opening Bell Framework
S&P 500 futures are up 0.2%, Dow futures have gained 131 points (0.3%), and Nasdaq 100 futures are higher by 0.1%. This modest recovery follows Tuesday’s dip and supports my view that we’re seeing a healthy pullback within a constructive trend, not a reversal.
Arista Networks surged 13% on strong results, reaffirming that quality AI infrastructure firms continue to deliver. In contrast, Snap fell 17% and AMD dropped 6%, highlighting that execution at premium valuations is paramount. This underscores why selective positioning matters more than broad sector exposure in today's market.
Despite recent weakness, five down days in the past six for the S&P and six of the last seven for the Dow, resilience is emerging. Small caps led Tuesday with the Russell 2000 up 0.6%, suggesting rotation into domestically focused names ahead of tariff moves. That rotation supports a framework built on U.S.-centric exposure.
Trade Framework: Tariff Countdown Intensifies
Trump’s announcement that semiconductor tariffs are coming “within the next week or so,” alongside pharmaceutical tariffs set to escalate to 150% over 18 months, introduces real sector-specific complexity. For AI infrastructure, supply chain exposure is now a differentiator, not just an operational detail.
India finds itself in a weaker negotiating position as Trump threatens to “substantially” increase the current 25% rate. Meanwhile, Switzerland’s president is in Washington seeking relief from the provisional 39% tariff. These binary outcomes will produce clear winners and losers as deal structures finalize.
Despite this, the US500 index holds near 6312, gaining 0.2% and demonstrating market resilience. Investors are increasingly focused on fundamentals over political noise. This backdrop supports my conviction that companies with pricing power and domestic alignment will outperform.
The China deadline of August 12 remains pivotal. Trump’s “getting very close” remark hints at progress, but the semiconductor angle complicates matters further. Tech remains both the bargaining chip and the battleground.
Earnings Digest: Mixed AI Results Validate Selective Approach
AMD’s results reflect the complexity of AI investing. Data center revenue rose 14% to $3.2 billion, but the $800 million China export hit was a drag. Its Instinct MI350 is positioned against Nvidia’s GB200, and CEO Lisa Su noted that “seven of the top ten model builders and AI companies use Instinct.” Still, challenges in execution show why not every AI name is created equal.
Client revenue jumped 57% to $2.5 billion, showing broader demand. The discussion of large-scale AI cluster buildouts supports my view that infrastructure investment cycles are ongoing.
Super Micro missed near-term expectations despite reaffirming FY26 revenue guidance above $33 billion vs. $29.9 billion consensus. Analyst Gil Luria summed it up well: “The market is strong, so this looks like share loss, not demand weakness.” Execution risk matters.
Snap’s 17% decline came as ARPU missed ($2.87 vs. $2.90) and revenue growth slowed to 8.7%. A glitch in the ad platform led to underpriced inventory, a reminder that platform stability is just as important as reach in digital advertising.
Fed Framework: Rate Cut Momentum Building
The S&P 500’s 0.49% decline to 6,299.19 came as rate cut expectations climbed. Options markets now price in 75bps of cuts versus 60bps pre-payrolls, suggesting a strong lean toward a September cut.
Trump’s Fed governor search continues. Bessent is reportedly out, but Kevin Warsh and Kevin Hassett remain in consideration, alongside sitting governor Chris Waller, who represents continuity with the Fed’s dovish tilt.
July’s flat services sector and softer employment data back the case for accommodation. That helps risk assets, especially in growth-oriented sectors like AI infrastructure, where lower rates amplify capital expenditure cycles.
Morning Earnings Digest: Mixed Results Validate Selective Framework
Disney posted adjusted EPS of $1.61 vs. $1.47 expected, but missed on revenue at $23.65 billion. Direct-to-consumer revenue rose 6% to $6.18 billion, but traditional TV sales fell 15% to $2.27 billion, showing how streaming gains aren’t yet offsetting legacy declines. Shares are down 1% pre-market as investors worry about topline deceleration.
McDonald's beat on both EPS ($3.19 vs. $3.15) and revenue ($6.84 billion vs. $6.7 billion). U.S. same-store sales rose 2.5%, breaking a two-quarter downtrend. International markets delivered even stronger growth of 4% to 5.6%. These results highlight the power of pricing and global diversification.
Uber also impressed, meeting EPS at 63 cents while beating revenue at $12.65 billion. Gross bookings grew 17% to $46.8 billion, and the $20 billion buyback announcement sends a clear signal of management confidence in its cash flow model.
Technical Framework: Consolidation Supports Continued Advance
Tuesday’s decline respected key moving averages, preserving a constructive technical setup. Monday’s broad rally, 80% of S&P 500 stocks rising, showed strong institutional participation, not just speculative chasing.
Nasdaq’s weakness was concentrated in speculative AI names. This rotation toward quality, names with earnings, not just themes, supporting the continuation of the broader move higher. My 6,500 year-end and 7,000 mid-2026 targets remain intact, with the market rewarding execution and pricing power.
Strategic Outlook: AI Infrastructure Differentiation Accelerates
The bullish case for AI infrastructure remains firm. This is not a one-quarter story, it’s a multi-year capital investment cycle. Selective positioning in proven names matters more now than ever, particularly with tariffs muddying global supply chains.
Top opportunities lie in:
Semiconductor equipment with U.S. production
Software firms delivering tangible AI-driven efficiency
Data center infrastructure plays expanding capacity
These names offer both growth and defensiveness, a rare combination in today’s market.
Today’s Calendar
8:30 AM Economic Data:
Mortgage Applications (Prior: -3.2%)
Earnings After Close:
Shopify Inc., Novo Nordisk A/S, AppLovin Corporation, e.l.f. Beauty Inc., DraftKings Inc.
Final Thought
Tuesday’s retreat was healthy, a breather after Monday’s rebound, and it validates the core of my thesis: execution matters more than hype. The market continues to reward earnings quality, as seen in Arista and McDonald’s, while punishing weaker operators like Snap and Super Micro.
Trump’s looming semiconductor tariff adds near-term complexity, but also sharpens the differentiation between winners and losers. Supply chain strength and proven monetization now define who leads and who lags in AI.
That said, August remains a seasonally choppy month. While the rally remains intact, if we fail to push back toward recent highs, we may be due for a modest pullback, one that should be seen not as threat, but as opportunity for accumulation in high-conviction names.
Stay selective. Focus on pricing power, operational excellence, and essential infrastructure. That’s where the real edge is.
Dan Sheehan
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.