Good morning investors,
The S&P 500 ($SPY ( ▼ 0.17% )) closed Monday at 6,228, down 0.8%, while the Nasdaq ($QQQ ( ▼ 0.09% )) fell 0.9% and the Dow dropped 0.9%, shedding over 400 points. After a run of record highs, renewed trade tensions sparked a pullback, but with earnings season approaching, this feels more like a healthy reset than a trend reversal.
Opening Bell: Futures react to tariff twists
President Trump unveiled a new round of tariffs targeting imports from South Korea, Japan, Malaysia, Kazakhstan, South Africa, Laos, and Myanmar. These blanket tariffs, ranging from 25% to 40%, pushed the previous July 9 trade deal deadline to August 1. The VIX briefly spiked nearly 5% before settling, suggesting volatility may remain elevated as markets digest shifting trade policies.
These tariff threats are giving the Fed further reason to stay patient. While inflation data has come in cooler than expected each month this year, the evolving trade backdrop complicates the Fed’s decision-making. Market odds for a September rate cut slipped to 62% on Monday, down from 75% a week ago. Traders now see almost no chance of a July cut. Investors will be watching the Fed’s June meeting minutes closely on Wednesday for any hint of a dovish shift.
Despite these risks, the pattern remains familiar: initial jitters followed by negotiation and eventual compromise. I continue to view any weakness as an opportunity, particularly with the earnings tailwind ahead.
Tech earnings: The main event
As I highlighted on Investing.com, tech is stepping into a pivotal earnings season that could drive the next leg of this bull market.
Tech earnings are expected to grow 16.6% year-over-year in Q2, with semiconductors forecast to soar 33% (FactSet, July 2025). Nvidia ($NVDA ( ▲ 0.79% )) , Microsoft ($MSFT ( ▼ 0.03% )) (July 29), and Apple ($AAPL ( ▲ 0.46% )) (July 31) will lead the charge. Multi-year AI investments are shifting from heavy capex to monetization, marking a significant pivot toward sustained profitability.
Guidance will be the key catalyst. Early indicators show fewer negative pre-announcements and more bullish outlooks, setting the stage for a second-half rally and potential multiple expansion.
Financials: Quiet strength
While tech captures headlines, financials continue to support the market. Banks like JPMorgan and Goldman Sachs are projected to post 8–10% EPS growth, buoyed by stable lending and M&A activity. Their resilience provides a strong foundation that complements tech’s momentum.
Market dynamics and positioning
Short interest remains elevated, S&P 500 short positions sit at 5.8% of float, with Nasdaq-100 at 6.1% (S3 Partners). This could fuel forced buying if momentum turns higher, adding another layer of support.
Large-cap dominance persists. Small caps (Russell 2000) are down about 1% year-to-date compared to the S&P’s 6% gain. AI-related winners and robust balance sheets have widened this performance gap, suggesting a more structural shift rather than a temporary trend.
Other developments to watch
IBM introduced its new Power11 chips and servers on Tuesday, designed to simplify and secure AI deployment, another sign that AI infrastructure investment is broadening beyond the mega-cap names.
Tesla fell 7% Monday after Elon Musk announced plans for a new "America Party," reigniting concerns over his focus. Combined with the loss of EV tax credits and intensifying competition, this underscores the importance of selective stock picking even in a strong market.
Meanwhile, Citi raised Nvidia’s price target to $190, highlighting ongoing AI infrastructure demand and strong public sector partnerships, reinforcing the wider adoption of AI across sectors.
My positioning
I remain overweight:
Technology and AI (especially software and cybersecurity)
Financials (benefiting from solid balance sheets and lending strength)
Nuclear Energy (key to powering AI data centers)
Select digital assets (supported by regulatory clarity and institutional adoption)
Any dips from tariff headlines should be shallow and viewed as buying opportunities, especially with Q2 earnings and potential policy shifts on the horizon.
Looking ahead
Monday’s decline looks like a reset rather than a reversal. Strong fundamentals, improving earnings prospects, and resilient consumer spending continue to support the bull case. Microsoft and Apple earnings later this month will be especially important for market sentiment and could trigger the next leg higher.
Final thoughts
I still see the S&P 500 advancing to 6,500 by year-end and reaching 7,000 by mid-2026 as earnings, liquidity, and policy align. This pullback offers an entry point for those who’ve been waiting on the sidelines.
Stay opportunistic, stay patient, and watch guidance closely as earnings season heats up.
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.