Market Pulse with Dan Sheehan

Good Morning Investors,

Markets face a critical juncture as geopolitical tensions surge to new heights. President Trump's weekend strikes on Iranian nuclear facilities have fundamentally altered the Middle East conflict dynamic, thrusting the U.S. directly into the confrontation.

While futures show measured responses this morning, the underlying reality is stark: we've entered uncharted territory where military action replaces diplomatic rhetoric. Oil's relatively muted reaction suggests markets are betting on containment, but Iran's promised retaliation looms large. This is no longer about regional skirmishes, it's about global energy security and supply chain stability in an already fragile economic environment.

Futures edge marginally higher despite weekend escalation. The S&P 500's ($SPY ( ▲ 0.18% )) 0.15% decline last week marked its second consecutive negative week, while oil prices climbed modestly to $74.68 per barrel, well below panic levels but reflecting underlying supply concerns. The Nasdaq ($QQQ ( ▲ 0.18% )) and the Dow ($DIA ( ▲ 0.26% )) were marginally up. The dollar strengthened on safe-haven demand, and the $VIX ( ▲ 1.44% ) remains elevated near 21, signaling persistent anxiety without outright fear.

European markets trade mixed in volatile sessions, while Asian equities showed resilience with Hong Kong and mainland Chinese stocks gaining on strong southbound flows. Japan's Nikkei declined on energy cost concerns and renewed risk aversion.

The weekend strikes on Iran's Fordo, Isfahan, and Natanz nuclear facilities represent a strategic escalation that markets are still processing. Trump's declaration that Iran faces "either peace, or there will be tragedy far greater than we have witnessed" sets a binary outcome framework that leaves little room for middle-ground scenarios.

Key market catalysts this week include Iran's response mechanism, whether targeting US personnel at regional bases or, more critically, threatening Strait of Hormuz closure. The strait handles roughly 20% of global oil transit, and any sustained blockade could drive crude above $100 per barrel, fundamentally altering inflation dynamics.

My Assessment: Markets are pricing in containment, and any Iran-driven selloff creates opportunity for quality positioning. I've been consistent for weeks that pullbacks should be bought, not feared. Watch for Iran's response within 48-72 hours, but use weakness as an entry point rather than an exit signal. This timeline will define market sentiment for the coming weeks.

This week's economic calendar takes on heightened significance against the geopolitical backdrop. Friday's PCE inflation report (core expected at 2.6% annually) will provide crucial insights into underlying price pressures before any energy shock impacts materialize.

Fed Chair Powell's semi-annual testimony Tuesday and Wednesday becomes pivotal. His recent comments about tariff-driven inflation expectations suggest the Fed is already forward-looking rather than purely data-dependent. The addition of energy price volatility complicates an already complex policy path.

Housing data remains weak with existing home sales expected at 3.97 million, down from 4 million prior. Manufacturing and services PMI readings will gauge economic momentum amid growing uncertainty.

This week's earnings from Carnival (CCL), FedEx (FDX), Micron (MU), and Nike (NKE) will test corporate America's ability to navigate multiple headwinds. FedEx results carry particular weight as a global logistics bellwether amid supply chain disruption risks.

Tesla's Texas robotaxi launch represents a significant milestone in autonomous vehicle commercialization, marking the first time Tesla vehicles without human drivers have carried paying passengers. While limited in scope with only 10 vehicles and safety monitors, this development validates Musk's long-term vision for the company's transformation beyond traditional auto manufacturing.

The Novo Nordisk CagriSema obesity trial results and Eli Lilly's orforglipron diabetes data highlight continued innovation in the GLP-1 weight management space, suggesting this sector remains resilient despite broader market volatility.

The market's technical pattern suggests we're in an ABC corrective phase that could extend through July. While the V-shaped rally thesis remains intact longer-term, near-term choppiness seems inevitable given multiple uncertainty vectors.

Iran's response will determine whether this becomes a contained regional conflict or a broader Middle East war with global implications. Oil price action provides the clearest market signal, sustained moves above $80 per barrel would trigger more defensive repositioning.

Fed policy becomes increasingly complex as officials balance inflation concerns from tariffs against potential growth impacts from energy price shocks. The July 29-30 FOMC meeting takes on greater significance as economic data and geopolitical developments converge.

Energy Exposure: Oil volatility likely persists. Consider energy sector positioning but avoid overconcentration.

Defensive Quality: Focus on companies with strong balance sheets and essential service offerings.

Fed Sensitivity: Interest rate-sensitive sectors face increased uncertainty as policy path becomes cloudier.

Technology Leadership: Maintain exposure to AI infrastructure leaders while monitoring geopolitical supply chain risks.

The V-shaped rally thesis remains intact despite weekend escalation and Fed uncertainty. While the S&P 500's recent weakness might concern some investors, pullbacks are likely to be shallow given the underlying resilience we've witnessed through multiple crisis cycles.

The actual market impact of Middle East hostilities has been arguably minimal, the VIX peaked around 22, levels we also saw in late May, and late-May was hardly a time to be de-risking. Iran's next move matters, but this market has shown remarkable ability to look through geopolitical noise toward fundamental strength.

The biggest positive from recent Fed communications is that traders' outlook for rate cuts now aligns with FOMC projections. This convergence of expectations removes a key source of market jitters, while the bullish steepening in the yield curve signals improved risk sentiment.

We're setting up for a classic ABC corrective pattern that could ultimately give way to a move back to new all-time highs, though not anytime soon. The possibility exists for a push toward 6,100, but I expect that level to be met with consolidation. The next month may be choppy, but these are the conditions that create opportunity.

I remain a longer-term bull. Use weakness as your friend.

👉 For more insights and macro coverage, subscribe here: https://dansheehan.beehiiv.com/subscribe

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor about your specific situation.