Market Pulse with Dan Sheehan

Good Morning Investors,

It's a classic pre-payrolls holding pattern, but this Friday brings heightened stakes. After a volatile week dominated by the explosive Musk-Trump feud, renewed China trade talks, and consistently soft economic data, investors now turn their full attention to the May jobs report. The economy appears to be wobbling—but not breaking—and today's data could decide whether the Fed gets room to pivot dovish, or whether higher-for-longer remains the base case.

Markets enter Friday in cautious optimism mode. S&P 500 futures are up 0.5%, Nasdaq futures are advancing 0.5%, and Dow futures are climbing 160 points. This modest rebound follows Thursday's selloff, where the S&P fell 0.5% and Tesla plummeted 14% amid the Musk-Trump public spat that erased over $150 billion from Tesla's market value in a single session.

Today's nonfarm payrolls report is expected to show a significant deceleration—just +125,000 jobs added in May versus April's 177,000, with unemployment holding steady at 4.2%. But after Wednesday's stunning ADP miss (37,000 vs. 110,000 expected—a two-year low), and Thursday's jobless claims hitting their highest level since October, market nerves are running high.

Thursday's public feud between Elon Musk and President Trump represents more than Twitter theater—it threatens $22 billion in SpaceX government contracts and multiple U.S. space programs. The spat began with Musk's "kill the bill" campaign against Trump's signature legislation, culminating in Trump's pointed threat: "The easiest way to save money in our Budget... is to terminate Elon's Governmental Subsidies and Contracts."

Tesla shares are attempting to claw back losses Friday amid reports that White House aides are scheduling a call to help broker peace. Short-sellers pocketed nearly $4 billion from Thursday's drop—the second-biggest single-day profit on record. Some analysts suggest the rift will blow over as it would be detrimental to both parties, but the public nature of the dispute signals deeper tensions in Trump's coalition.

Offsetting some tariff concerns, President Trump and Xi Jinping spoke for 90 minutes Thursday in what Trump called a "very good phone call." The two teams will be meeting "shortly at a location to be determined." While trade-focused conversations haven't settled anything yet, the news briefly pushed the S&P 500 back to 6,000 before the Musk-Trump drama took center stage.

This development is crucial as markets assess the economic impact of Trump's tariff policies. Real effects are already emerging: U.S. Steel confirmed layoffs of 800 workers directly linked to falling export demand following steel tariff hikes.

Broadcom delivered strong results and optimistic guidance, forecasting Q3 revenue of $15.80 billion (vs. $15.71 billion expected). CEO Hock Tan expects AI semiconductor revenue to accelerate to $5.1 billion in Q3, marking ten consecutive quarters of growth. Morgan Stanley raised their target price to $270, while JPMorgan went further, boosting their target to $1,680 and calling AVGO "the next AI compounder."

Circle Internet Group made a spectacular market debut, surging 168% on its first trading day to close at $83.23. The stablecoin issuer's IPO raised $1.05 billion and valued the company at nearly $18 billion, providing a much-needed boost to the struggling IPO market.

Lululemon disappointed, cutting its annual profit forecast due to higher tariff mitigation costs and tepid demand. The company cited "lower store traffic in the Americas, partially reflective of economic uncertainty, inflationary pressures, lower consumer confidence, and changes in discretionary spending."

Friday's jobs report carries extra weight because it may be one of the last "clean" reads before tariff effects fully materialize. RSM chief economist Joe Brusuelas notes: "While we think it is still too soon for the jobs report to capture the adverse impact of trade policy—that impact will show up in the employment reports for July and August—the overall cooling trend suggests that employment and wage growth will be insufficient to completely absorb that impact."

Key metrics to watch:

The concerning backdrop includes not just the ADP miss, but also elevated continuing claims near four-year highs, suggesting unemployed workers are having difficulty finding new jobs.

We're witnessing a fascinating tension between softening macro data and continued corporate earnings resilience. The weak services PMI, plunging business optimism surveys, and rising jobless claims are flashing yellow. Yet systemic stress remains absent—the VIX sits below 14, and credit spreads have only modestly widened.

Chris Zaccarelli of Northlight Asset Management warns: "We are approaching an inflection point, where the concerns of stagflation can seep into the greater market narrative. We are seeing dropping productivity and slower growth, while also seeing signs of higher (or sticky) inflation."

The key question: Is this an orderly cooling that gives the Fed room to maneuver, or the beginning of a more concerning slowdown masked by corporate resilience?

A soft payrolls report could reignite rate cut expectations and push equities toward new highs. A strong surprise might reignite the bond selloff and challenge the recent dovish repricing. I'm leaning toward a benign outcome—the ADP miss likely understated actual strength, but the broader cooling trend suggests significant deceleration.

Fed Governor Adriana Kugler offered reassurance Thursday: "One encouraging sign about economic activity is the resilience of the labor market... the data in hand indicate that employment has continued to grow and that labor supply and demand remain in relative balance."

From a technical perspective, markets maintain healthy cushions above key support levels. The S&P 500 at 5,939 sits 2.5% above its 200-day moving average at 5,794, while the Nasdaq at 21,551 trades 5.6% above its 200-day MA at 20,412. These levels provide room for a healthy pullback while remaining within normal bull market parameters.

Historical context is important here: roughly 50% of calendar years experience at least a 10% correction, with successful tests of the 200-day MA occurring about 70% of the time during established uptrends. Current market breadth shows approximately 60% of S&P 500 stocks trading above their individual 200-day MAs—healthy but not euphoric, suggesting selective strength rather than broad-based exuberance.

Whatever today's jobs outcome, the market needs clarity. This report could provide the inflection point that determines whether we're seeing healthy moderation that allows for tactical opportunities, or concerning weakness that challenges the technical foundation.

This market environment demands patience and precision. The Musk-Trump drama will likely resolve, but it highlights the political complexities underlying current policies. The China call offers hope for trade stability, but real economic effects are already emerging in employment data.

Stay anchored in fundamentals: AI infrastructure demand (see Broadcom), quality balance sheets, and earnings resilience remain the core pillars. Don't get shaken out by political theater—but do respect the gathering economic headwinds that may finally show up in today's employment data.

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.