Market Pulse with Dan Sheehan

Good Morning Investors,

It's another test for the bulls. After a strong rebound earlier this week, equity futures are mixed this morning as traders digest concerning signals across the board. The tariff noise hasn't gone away—and fresh steel and aluminum tariffs just kicked in at 50%. Nvidia remains the poster child of this cycle, hitting new highs and briefly overtaking Microsoft in market cap again. Meanwhile, sharply weaker labor data is shaping expectations into Friday's nonfarm payrolls report. The narrative is shifting: growth concerns emerging, tariff uncertainty amplifying, and business optimism tanking. The path higher isn't linear—and it's getting rockier.

Markets are treading water after mixed signals. Futures are little changed this morning with the S&P 500 flat, Nasdaq fractionally higher, and the Dow slightly lower. Nvidia led yesterday's gains, continuing its parabolic move, and Big Tech remains firmly in control. The S&P 500 managed a narrow gain yesterday but momentum is clearly fading.

Yesterday's ADP jobs number came in dramatically below expectations at just +37k versus +110k expected—the weakest reading in over two years. This wasn't just a modest miss; it was a sharp deceleration that spooked markets and prompted Trump to lash out at Fed Chair Powell, calling him "unbelievable!!!" for not lowering rates. Treasury yields fell nearly 10 basis points, with the 10-year settling around 4.36%—the lowest since May 9th. That bond rally reflects growing recession fears.

Trump's steel and aluminum tariff hikes went into effect Wednesday, doubling duties to 50% for most trading partners (the UK was spared). This comes as Wednesday marked the deadline for countries to make their "best offers" to avoid broader "reciprocal" tariffs scheduled for July 9th. Most investors initially treated tariff threats as negotiating noise, but the economic data is starting to suggest real impact.

Meanwhile, services PMI delivered another concerning signal. The ISM non-manufacturing index fell to 49.9 in May—below the 50 threshold that separates expansion from contraction. This marked just the fourth contraction in five years and came well below the 52.0 expected. The takeaway: tariff uncertainty is weighing on the services sector, which represents the bulk of the U.S. economy.

One theme worth emphasizing is the bond market reaction. Long-end yields fell sharply on the weak data, with the 10-year and 30-year both dropping nearly 10 basis points. This isn't just about Fed policy anymore—it's about growth concerns. The market is starting to price in the possibility that tariff impacts could be more severe than initially anticipated.

One of the standout stories this week is Navitas Semiconductor. The stock surged 47% following a strong earnings beat and upward guidance revision, jumping to $6.78 from recent lows. Revenue hit $28.5M for Q1, beating expectations by over 15%, and the company raised full-year guidance on the back of surging AI infrastructure demand.

The real catalyst came from two major partnership announcements. First, Nvidia selected Navitas to help power its next-generation AI data center systems—incredible validation that sent the stock flying. Second, the company partnered with BrightLoop to bring its advanced chip technology to hydrogen fuel-cell chargers for heavy-duty agricultural equipment.

Navitas is well positioned to benefit from the electrification cycle—not just in EVs and solar, but increasingly in high-efficiency data centers where power management is mission-critical. Their gross margin expanded to 44.2%, signaling better operating leverage, and CEO Gene Sheridan laid out his vision for high-voltage power solutions at the Baird conference.

This is the kind of move that illustrates how AI is lifting the whole ecosystem, not just the headline names. For long-term investors, this remains early innings for differentiated power chip players.

Nvidia keeps defying gravity. After reclaiming the crown of most valuable public company, it tacked on another $100 billion in market cap. The company is now worth over $3.5 trillion, as investor appetite for AI infrastructure exposure shows no sign of slowing. This is no longer just about chips—it's a proxy for the entire enterprise AI stack.

Meanwhile, Broadcom reports earnings tonight, and that will be a litmus test for the AI trade beyond Nvidia. Expectations are high after AVGO's strong year-to-date performance. Watch cloud capex commentary closely.

Outside of AI, the tech sector faces headwinds. Apple continues to navigate challenges, and the broader concern is whether tariff uncertainty starts impacting tech supply chains more meaningfully.

Procter & Gamble announced it would cut 7,000 jobs—about 6% of its workforce—over the next two years as part of a restructuring plan to counter "uneven consumer demand and higher costs due to tariff uncertainty." The consumer goods giant also plans to exit some product categories and brands, with executives noting this acceleration is needed "to win in the increasingly challenging environment."

Citigroup will reduce staff at its China technology centers by about 3,500 employees as it simplifies global tech operations. The cuts reflect broader concerns about U.S.-China relations and the challenging operating environment.

On the positive side, several companies received analyst upgrades, including Dollar General (BofA raised target to $135 from $115) and Texas Instruments (Bernstein upgraded to market-perform with a $180 target).

The economy is sending increasingly mixed signals. Labor data is softening meaningfully—not just at the margins. Services are contracting. Business optimism has collapsed, with only 27% of executives confident about the economic outlook versus 67% just after the election. One in five business executives now believe the U.S. is already in recession, while another 34% expect one by year-end.

The Fed finds itself in a difficult position. Trump is publicly pressuring Powell to cut rates, but with tariff-driven inflation risks still present, the central bank faces a complex balancing act.

I remain cautiously optimistic with a constructive view toward year-end highs, but I'm expecting meaningful chop in the near term. The sharp miss in ADP payrolls and services contraction create noise, but they also set up potential for a melt-up scenario if Friday's jobs report provides any reassurance.

Here's the contrarian setup I'm watching: positioning remains heavily short, many investors are still underweight U.S. equities, and there's a wall of cash on the sidelines. If tomorrow's jobs report shows the ADP miss was an outlier, we could see a violent squeeze higher as shorts cover and underweight positions scramble to catch up.

The AI infrastructure buildout has fundamental legs, and names like Nvidia aren't going away. Broadcom's earnings tonight will be telling, but the broader theme remains intact. The question isn't whether we reach new highs—it's when and how volatile the path gets.

Friday's jobs report is the immediate catalyst. A solid number could unlock Fed rate cut expectations and fuel the next leg higher. Weak data might extend the chop, but it also increases the probability of dovish Fed pivots that ultimately benefit risk assets.

Stay selective through the volatility. Stay patient with quality names. But keep your shopping list ready—the setup for a year-end rally remains compelling, even if we need to navigate some turbulence first.

Please feel free to reach out to me on LinkedIn or by email if you would like help navigating this market environment or have any planning-related questions.

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.