Good morning investors,
The S&P 500 ($SPY ( ▲ 0.18% )) closed Wednesday at 6,227, gaining 0.5% and moving closer to my year-end target of 6,500. The Nasdaq ($QQQ ( ▲ 0.18% )) led the charge, up 0.8% to another record high, powered by Apple ( $AAPL ( ▲ 0.31% )) and Tesla ($TSLA ( ▲ 0.05% )) . The Dow finished flat, perhaps catching its breath after Tuesday’s strong healthcare rally.
After a robust first half (up 10.6% for the S&P and nearly 18% for the Nasdaq), the market has earned a pause. But under the surface, the setup remains solid. AI-driven productivity gains, resilient consumer spending, and supportive policy are creating an environment where the dreaded “recession” narrative remains far more noise than signal.
Back in April, I called this a growth scare, not a recession, and that view has aged nicely. Despite persistent bearish sentiment (the AAII 20-week net bulls is at –22%, a massive outlier), equity markets continue to grind higher. This remains one of the most “hated” rallies we've seen in years — and ironically, that skepticism is the fuel that keeps it going.
Opening Bell: Market dynamics and tariff theatrics
Futures are little changed this morning as investors brace for June’s big jobs report. S&P 500 futures are fractionally lower, Nasdaq-100 futures are flat, and Dow futures are up 11 points.
ADP data on Wednesday showed private payrolls fell by 33,000 in June, the first decline since March 2023. While this suggests some caution from businesses, context matters. The JOLTS report showed 7.8 million job openings in May, the highest since late 2024. ISM manufacturing beat expectations at 49.0, durable goods orders are holding firm, and service activity remains in expansion territory.
On the trade front, President Trump’s deal with Vietnam — dropping to a 20% tariff instead of the feared 46% “Liberation Day” level — is another example of last-minute brinkmanship ending in compromise. While betting markets have reduced the odds of removing reciprocal tariffs from 70% to 47%, we’ve seen this movie before: headline volatility followed by an eleventh-hour resolution.
Labor market: All eyes on Thursday
The June jobs report is expected to show 110,000 new payrolls, with the unemployment rate ticking up to 4.3%. Slower, yes, but hardly a collapse. The Fed, already leaning dovish, will have even more cover to cut rates, potentially as soon as this month.
The Department of Government Efficiency (DOGE) layoffs, spearheaded by Elon Musk, are beginning to show up in the data, particularly in white-collar sectors like data analytics and software. While tough for those affected, these layoffs aren't likely to derail overall consumer or corporate spending trends.
As economist Cory Stahle pointed out, demand for high-skilled roles has softened, but sectors reliant on in-person labor remain strong. This divergence highlights the flexibility in the U.S. economy — another reason I don’t see a proper downturn materializing.
Short interest and market fuel
I've discussed all year how elevated short interest can sustain a rally. S3 Partners data shows S&P 500 short interest has climbed to 5.8% of float (up from 5.4% at the start of the year), while Nasdaq-100 short interest has increased to 6.1%.
Despite this bearish positioning, the S&P is up just over 6% year-to-date — lagging global peers, but setting up the potential for a sharp move higher if forced buying kicks in. There’s still plenty of powder dry to push us higher.
IPO resurgence and "animal spirits"
Circle's blockbuster IPO in June is a prime example of renewed risk appetite. Raising $1.1 billion and closing its first day up 168%, Circle's debut highlights the strong demand for high-growth stories.
This isn't an isolated event. The broader IPO market is heating up — eToro and CoreWeave have both outperformed, and filings from Gemini and Bullish point to a robust second-half pipeline.
Regulatory tailwinds, like the GENIUS Act and a crypto-friendly administration, are fueling optimism. Strong bank balance sheets (CET1 ratios above 13%) and expected Fed rate cuts (50–75 basis points by year-end) only add to the case for a resurgence in "animal spirits" in the second half of 2025.
Outlook and positioning
I remain overweight Technology and AI (especially software and cybersecurity), Financials (well-capitalized and positioned for growth), Nuclear Energy (a backbone for AI data center power), and digital assets.
I continue to watch jobs data, inflation readings, and trade developments closely. Any short-term volatility or pullbacks should be shallow and treated as buying opportunities, with strong pent-up demand ready to step in.
At the halfway mark of 2025, the S&P 500 sits at an all-time high, up over 6%, and market leadership is broadening beyond mega-cap tech. This suggests a healthy bull market, not a speculative bubble.
Final thoughts
This market is supported by strong fundamentals, policy momentum, and a resilient economy. The persistent bearish sentiment is, ironically, one of the most bullish indicators out there.
I continue to see the S&P 500 advancing to 6,500 by year-end and potentially 7,000 by mid-2026. The setup for the second half of 2025 is shaping up to be a perfect storm for renewed risk-taking and "animal spirits," driven by earnings beats, strong consumer balance sheets, and a dovish Fed.
Stay invested, stay opportunistic, and enjoy the Independence Day holiday.
Market Pulse will return after the break.
Please feel free to reach out to me on LinkedIn or by email if you'd like help navigating this environment or have any planning questions.
Dan Sheehan
This newsletter is for informational purposes only and should not be considered investment advice. Please consult your financial advisor about your specific situation.