Market Pulse with Dan Sheehan

Good Morning Investors,

The S&P 500 ($SPY ( ▼ 0.44% )) closed at 6,141.02 yesterday, just 3 points from its February all-time high of 6,144.15. After an 0.8% gain Thursday, we are witnessing the near-completion of a 23.3% rally from April's closing lows. This is the exact setup I forecasted and positioned for in Q1. From rate cuts to AI infrastructure to Tech leadership, the alignment is clear. This morning's PCE data at 8:30 AM ET could be the final catalyst to push the market to new records.

The market is not drifting higher. It is breaking out with conviction. Rate cut expectations are surging. Trade frameworks are being finalized. Breadth is expanding beyond the Magnificent 7. The ingredients are now in place for the next leg up.

Futures are climbing this morning, with S&P 500 futures up 0.2% and Nasdaq-100 ($QQQ ( ▼ 0.29% )) futures advancing 0.3%. NVIDIA ($NVDA ( ▲ 1.02% )) closed at $155.08 yesterday, extending its breakout to new all-time highs and solidifying its spot as the most valuable company in the world with a $3.8 trillion market cap. The semiconductor rally continues to build strength.

Momentum is being driven by a potent mix of catalysts. Commerce Secretary Lutnick confirmed a finalized U.S.-China trade framework overnight, with China's Ministry of Commerce confirming the framework will allow rare earth exports to the U.S. and ease tech restrictions. The Fed's dovish pivot is accelerating. Institutional money is finally chasing the move.

Markets are re-rating rapidly due to shifts in economic data and policy expectations. Q1 GDP was revised to a -0.5% contraction (deeper than the previous -0.2% estimate). Continuing claims are rising, with Thursday's data showing another sign of labor market cooling. Multiple Fed officials are now discussing cuts openly.

Rate cut probability has exploded higher: The market now prices a 27% chance of a July cut (up from 12.5% last week) and a 92% chance of cuts by September (up from 64%). This validates my long-standing view that the economy is cooling enough to justify rate cuts, but not collapsing—the sweet spot where risk assets can thrive.

The Fed's dovish turn, combined with easing trade tensions and a weaker U.S. Dollar at multi-year lows, provides ideal tailwinds. The administration's search for a new, more dovish FOMC governor has only accelerated the trend. Long-term, I expect more Dollar weakness into Q3, which should benefit Emerging Markets and commodities.

Trade momentum building: President Trump's July 8-9 tariff deadlines are now described as "not critical" by the White House, with possible extensions for countries making "authentic progress" on deals. The administration expects to reach deals with 10 major trading partners imminently. This reduces the worst-case tariff scenarios that weighed on markets in April.

Short-term trends remain bullish. Market breadth has notably improved this week, with the Equal-weighted S&P and Dow Transports extending gains. The NASDAQ 100 has reclaimed all-time highs, sitting just 0.1% below its intraday record of 6,147.76. The breadth expansion is clear and sustainable.

Nvidia's breakout above $153 confirms renewed leadership from Tech. The stock's three-month performance has now eclipsed its twelve-month return, fueled by structural AI demand. The Philadelphia Semiconductor Index (SOX) is poised to test all-time highs, and I expect a rotation back into Software from Semis to emerge later in July.

From a DeMark and Elliott-wave perspective, there is no immediate sign of exhaustion. Weekly signals suggest NVDA could reach the $165–$173 range before any meaningful stall. Any pullback here would likely be shallow and short-lived.

Financials, Discretionary, and Industrials have joined the rally this week. Financials in particular are breaking out, which is especially important given their index weight. This rotation is essential to sustaining the rally.

Sentiment remains a tailwind: AAII readings show more Bears than Bulls, even after a 1,300-point rally in the S&P. Hedge funds and CTAs remain underweight, and foreign investors have yet to re-engage meaningfully with U.S. equities. As one BlackRock CIO noted, "there is so much money that wants to come into the market that didn't for a while." This sets up further upside as positioning normalizes.

At 8:30 AM ET, we get the Fed's preferred inflation measure. Expectations are for core PCE at 0.1% monthly (2.6% YoY) and headline PCE at 0.1% monthly (2.3% YoY). Whether it lands slightly above or below forecast, the trend is now established. Disinflation is happening. The Fed is responding. Markets are pricing it.

The more consequential print will be June CPI, but May's data should reinforce the dovish backdrop and potentially trigger the final push to new S&P 500 records.

Nike's tariff pivot validates my thesis: Nike announced it will reduce China-based production for U.S. markets from 16% to high single digits by mid-2026. The company beat Q4 estimates despite a 12% sales decline, with better-than-expected Q1 guidance. This exemplifies how companies are adapting to the new trade environment—exactly what I predicted would happen.

AI arms race intensifies: Meta has hired multiple OpenAI researchers for its new superintelligence team, escalating competition. Meanwhile, Singapore's case against three men linked to illegal NVIDIA chip transfers to Chinese AI firm DeepSeek has been adjourned, highlighting ongoing geopolitical AI tensions.

Stablecoin momentum accelerating: Following the GENIUS act passage, Coinbase is up 42% this month and Circle has surged nearly 7x from its IPO price. This sector remains a key opportunity as payment innovation unfolds.

Small caps remain in focus. I would like to see IWM break out of its multi-year downtrend and catch up to large caps. Bitcoin continues to lead—breaking out a month ahead of equities and maintaining its role as a reliable signal.

The rally is still underappreciated. Retail has led. Institutions are lagging. Breadth has expanded. Semiconductors are strong. The technical and fundamental setup remains supportive.

I remain overweight Technology, AI Infrastructure, Semiconductors, and Nuclear Energy. I'm selectively long Financials and stablecoin-related infrastructure. Rate-sensitive cyclicals without AI leverage are underweight.

The collapse of worst-case scenarios (severe tariffs, hawkish Fed, Middle East escalation) has unleashed animal spirits. With a clearer playing field and gravitational pull higher, I expect a mild pullback post-July 4th but view any dip as a buying opportunity. We are still in the early stages of a new bull market.

Seasonality favors bulls into July. July 9 trade headlines, Q2 earnings, and potential Fed commentary shifts will be the next big triggers. I'll be watching for rotation from Semis into Software once SOX tests highs.

In Treasuries, TLT looks near resistance between $88–89.50 and may pull back before resuming its rally into late summer. Yields could bounce in July, but trend lower into the Fall.

This isn't euphoria. It's recognition. AI is no longer just a story. It's infrastructure. The Fed is shifting. The consumer is stable. The trade drag is easing. We're getting what we asked for.

When volatility drops and uncertainties fade, the market's rise becomes almost gravitational. With earnings growth, AI momentum, and now dovish Fed policy aligning, conditions are ripe for the next leg higher.

I remain long Tech, long AI, and firmly bullish into year-end.

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Dan Sheehan

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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.