Good Morning Investors,
Thursday's pre-market action tells a powerful story: markets are finally getting the clarity they've been craving. After weeks of navigating tariff uncertainty and AI infrastructure questions, two overnight developments have combined to spark a significant relief rally that could define the week ahead.
We’re coming off a stretch where headlines dictated sentiment and volatility overshadowed fundamentals. With markets caught between rising bond yields, shifting trade policy, and questions about the durability of AI-led growth, the need for confirmation has been building. That confirmation came last night.
A federal court ruling blocking President Trump’s sweeping tariffs, paired with a blockbuster earnings report from Nvidia, has cleared two major sources of uncertainty in one stroke. The timing is critical as investors have been underweight, consumer confidence just rebounded, and we’re heading into month-end with positioning still defensive. Now, the tape is telling us something different: the backdrop may be shifting toward clarity and confidence.
Before the Bell
Stock futures are surging this morning in what feels like a collective exhale after months of policy uncertainty. S&P 500 futures have jumped 1.2%, while Nasdaq 100 futures are leading the charge with a 1.7% gain. Dow futures are up around 300 points, reflecting broad-based relief across sectors.
The catalyst is clear: a federal trade court ruling that blocked President Trump's sweeping tariffs, combined with Nvidia's strong earnings report that proved AI infrastructure demand remains bulletproof despite regulatory headwinds. After Wednesday's modest decline, with the S&P 500 falling 0.6%, this morning's action suggests the market is ready to build momentum heading into month-end.
Court Blocks Trump Tariffs: Markets Breathe Easy
A federal trade court delivered what markets desperately wanted to hear: President Trump's sweeping "reciprocal" tariffs have been ruled illegal and blocked from implementation. The U.S. Court of International Trade found that the administration overstepped its authority when imposing these duties in April.
This ruling addresses one of the biggest uncertainties weighing on markets in recent months. The April announcement of these tariffs had sent shockwaves through equity markets and forced companies to dial back forecasts due to policy uncertainty.
While the administration is expected to appeal and pursue alternative legal pathways for tariff implementation, the immediate market reaction suggests investors are taking this as a positive development. Treasury yields are climbing as the decision potentially reduces tariff revenue at a time when fiscal concerns are mounting.
Nvidia Proves AI Infrastructure Remains Bulletproof
Even more significant for market direction was Nvidia's earnings report, which demonstrated that AI infrastructure demand remains incredibly robust despite regulatory headwinds. The company delivered revenue of $44 billion, beating expectations and growing 69% year-over-year.
The headline grabber was an $8 billion hit from China export restrictions, but here's what matters: this is a policy problem, not a demand problem. Nvidia's underlying gross margins would have reached 71.3% excluding these regulatory impacts, proving pricing power remains intact.
What's particularly encouraging is the hyperscaler story. Microsoft, Amazon, and Google still represent just under half of data center revenue and are ramping up adoption of next-generation Blackwell chips that deliver order-of-magnitude performance improvements.
Jensen Huang's commentary reinforced the structural nature of this transition: "Global demand for Nvidia's AI infrastructure is incredibly strong and will accelerate." This isn't about hype anymore. It's about economic infrastructure being rebuilt around accelerated computing.
The Bigger Picture: AI Spending Cycle Intact
Despite macro concerns and bubble fears, major cloud providers continue increasing AI capital expenditure. Enterprise adoption is accelerating, sovereign buyers are ramping investments, and the use cases are becoming tangible with measurable ROI.
This spending pattern differs fundamentally from previous technology cycles because the compute layer has become the critical bottleneck for innovation across industries. Companies aren't just buying chips. They're buying the foundation for economic transformation.
Market Positioning: Underweight US Could Reverse Quickly
An interesting dynamic is developing: most investors remain underweight US equities, yet the US is one of the few major markets showing negative performance year-to-date. With AI infrastructure companies leading the charge and trade uncertainty potentially easing, this positioning could reverse rapidly.
The combination of strong AI earnings, reduced tariff concerns, and underweight positioning creates a compelling setup for continued market strength, particularly in technology infrastructure plays.
What's Next
Today's economic calendar includes second estimate of Q1 GDP, initial jobless claims, and pending home sales data. But the real focus will be on how markets digest the twin developments of tariff relief and AI infrastructure strength.
The Fed minutes earlier this week showed continued concern about tariff-driven inflation, making this court decision particularly relevant for monetary policy expectations. If tariff implementation is delayed or reduced, it could provide the Fed more flexibility on rates.
Closing Thoughts
This morning's rally represents more than just a relief bounce. It's a market finally getting the clarity it desperately needed. The combination of reduced tariff risk and confirmed AI infrastructure strength addresses the two biggest uncertainties that have kept investors cautious.
What's particularly encouraging is how quickly sentiment can shift when policy fog lifts. Tuesday's consumer confidence surge after the EU tariff delay showed this dynamic at work, and this morning's futures action suggests the pattern is repeating on a broader scale.
But let's be realistic about what comes next. This isn't the end of trade policy volatility, and Nvidia's China challenges won't disappear overnight. The Trump administration will likely appeal the court decision and pursue alternative tariff pathways. Meanwhile, the AI infrastructure story remains intact but faces ongoing geopolitical complexity.
The key insight is that markets have been coiled by uncertainty, not broken by fundamentals. With many investors still underweight US equities and the structural AI transformation accelerating, this clarity could unlock significant positioning shifts in the weeks ahead.
I continue to favor staying constructive on AI infrastructure plays and broader market exposure. The runway for growth remains substantial, policy headwinds may be easing, and sentiment shifts can happen faster than fundamentals suggest. This is a moment to let the winners work.
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.