Good Morning Investors,
The S&P 500 ($SPY ( ▼ 0.44% )) closed Tuesday just under 6,200, slipping 0.1%, as the Nasdaq ($QQQ ( ▼ 0.29% )) dropped 0.8% and the Dow ($DIA ( ▼ 0.78% )) bucked the trend, climbing 0.9% on the back of strength in healthcare names like Amgen, Johnson & Johnson, and UnitedHealth. After a robust first half, up 10.6% for the S&P 500 and nearly 18% for the Nasdaq, it's no surprise to see the market taking a breather, digesting policy shifts and positioning ahead of pivotal economic data this week.
Yet beneath the surface, the structural drivers remain robust. AI adoption is accelerating, the fiscal backdrop is increasingly supportive, and the Fed is signaling an openness to policy flexibility. As we head into Q3, I maintain my conviction in both tactical and strategic opportunities, underpinned by the Senate's narrow passage of the "One Big Beautiful Bill Act" (OBBBA) on Tuesday. This bill, love it or loathe it politically, is a significant catalyst from a purely market standpoint.
My S&P 500 target of 6,500 by Q4 2025 and a bold 7,000 by mid-2026 remain in place, supported by earnings resilience, liquidity tailwinds, and a broader leadership rotation beyond tech.
Opening Bell: Market Dynamics and Sentiment
Futures are modestly higher this morning as investors digest the OBBBA's implications and await key data. Dow futures are up 69 points (0.2%), S&P 500 futures have gained 0.1%, and Nasdaq-100 futures are also up 0.1%.
Tuesday's action was telling: we saw rotation out of mega-cap tech, the information technology sector dropped over 1%, with names like NVIDIA and AMD taking a pause, and into defensive sectors like healthcare and materials. This broadening of leadership is exactly what you want to see to sustain an advance, as it reduces concentration risk and suggests that investors are still finding value beyond the obvious AI winners.
Tuesday's JOLTS data showed 7.76 million job openings in May, the highest since November 2024, reminding us that, despite some softening signals, the labor market remains tight enough to support consumer spending and corporate earnings. Oxford Economics' Nancy Vanden Houten highlighted that there was "nothing" in the data to shake the Fed's patient approach, but she did note a growing risk that when cuts come, they might be larger than expected, possibly a 50 basis point move.
With today's ADP private payrolls report (expected 120,000 jobs vs. 37,000 prior) and tomorrow's June nonfarm payrolls, we're likely to see some short-term volatility. But fundamentally, the market setup remains constructive.
Macro & Policy Backdrop: The OBBBA's Market Implications
On Tuesday, the Senate narrowly passed the OBBBA with Vice President Vance casting the tiebreaking vote. The bill now heads back to the House, where it's expected to face more scrutiny, but from a market perspective, its passage unlocks a fresh fiscal lever.
The bill extends the 2017 Tax Cuts and Jobs Act's 21% corporate tax rate, introduces new incentives (no tax on tips or overtime, auto loan deductions for U.S.-assembled vehicles, and full bonus depreciation), and cuts spending ($800 billion from Medicaid and $349 billion from education).
The Congressional Budget Office estimates it will add between $2.4 trillion and $3.9 trillion to deficits over the next decade, potentially more if temporary measures become permanent. While that sounds alarming from a budget perspective, markets tend to focus on the near-term liquidity injection and growth incentives rather than the long-term debt arithmetic.
Liquidity, M2, and Animal Spirits
The combination of tax cuts and deficit spending is set to meaningfully expand liquidity. UBS projects an increase in personal consumption expenditures of $590 billion over 2025 to 2028, offset partially by $520 billion in reduced federal assistance.
Deficit-financed borrowing typically boosts the M2 money supply as the government injects cash into the private sector and bank deposits rise. After the TCJA in 2017, M2 grew roughly 6% annually through 2019, and for the OBBBA, I anticipate a similar 4% to 6% annualized boost, depending on how dovish the Fed remains.
This backdrop stirs "animal spirits" in the market, encouraging risk-taking and supporting higher valuations.
Corporate Developments: Banks Lead the Charge
The market's underlying strength was reinforced by major banking announcements Tuesday. U.S. banking giants announced plans to raise their third-quarter dividends after clearing the Federal Reserve's annual health check last week:
JPMorgan Chase raised its dividend to $1.50 a share from $1.40 and announced a new $50 billion share repurchase program.
Bank of America will raise its dividend by 8% to 28 cents per share.
Wells Fargo increased to 45 cents a share from 40 cents.
Morgan Stanley approved a new $20 billion share repurchase program and will raise its quarterly dividend to $1 per share.
Goldman Sachs' dividend will climb to $4 from $3.
Citigroup's will rise to 60 cents from 56 cents.
This dividend largesse reflects the sector's robust balance sheets and confidence in the economic outlook, exactly the kind of capital return activity that should accelerate under the OBBBA's more favorable tax and regulatory environment.
Bull Case for Bitcoin and Digital Assets
Bitcoin, consolidating around $107,000 after its May peak at $112,509, remains a key component of my portfolio with a year-end target of $150,000.
The OBBBA, through its inflationary potential and mark-to-market tax provisions, strengthens the case for crypto:
Inflation Hedge: Large deficit spending and rising M2 growth make Bitcoin's capped supply increasingly attractive.
Crypto Provisions: The new accounting treatment reduces friction for institutional investors and could drive adoption. Meanwhile, the 3.5% remittance tax on international money transfers may push more non-U.S. users toward decentralized options like Bitcoin and Solana.
Market Signal: Bitcoin continues to act as a leading risk-on indicator. Its strength signals broader risk appetite that should support equities.
Sector Views and Key Developments
Overweight: Technology and AI (especially software and cybersecurity), Financials (benefiting from deregulation and strong balance sheets), and Nuclear Energy (as a strategic enabler for AI power needs).
The tech rotation we're seeing is healthy. While NVIDIA and AMD pulled back Tuesday, this creates entry opportunities ahead of what I expect will be strong Q2 earnings. Intel's new CEO exploring major changes to its foundry business signals the ongoing transformation in semiconductor manufacturing, while the broader AI infrastructure build-out continues.
Selective: Consumer Discretionary, on the back of tax-induced spending boosts. Constellation Brands missed quarterly estimates amid tariff concerns, but these are exactly the headwinds the OBBBA's trade clarity should help resolve.
Underweight: Clean Energy & EVs (given subsidy cuts), and Healthcare & Education (due to funding reductions). The ongoing Trump-Musk tensions over EV subsidies sent Tesla down 5% Tuesday, highlighting these sector-specific risks.
Notable Corporate Actions
Amazon: Jeff Bezos sold $737 million worth of shares in late June, but this appears routine under his 10b5-1 trading plan. The underlying business strength remains intact, with Jefferies raising their target to $255.
Paramount: The $16 million settlement with Trump over the '60 Minutes' interview removes an overhang, though media sector challenges persist.
Alphabet: The $314.6 million jury verdict over Android data usage represents regulatory friction, but Google will appeal and this doesn't materially impact the investment thesis.
Risk Management and Catalysts
Risks: Inflation surprises in upcoming data, unexpected tariff reinstatements, and regulatory crackdowns on crypto flows.
Key Catalysts:
Today's ADP employment data and tomorrow's jobs report
July 9 tariff decision deadline
Q2 earnings season kickoff
Potential Fed communication on rate cut timing
Portfolio Positioning
I remain overweight Technology and AI (particularly software and cybersecurity), Financials, Nuclear Energy, and digital assets. The banking sector's dividend increases and strong capital positions make them particularly attractive under the OBBBA framework.
I continue to monitor shorter-term data closely, including jobs and inflation, to ensure we don't drift into a short-term "growth scare" narrative. Any volatility or pullback would be shallow and viewed as a buying opportunity, with strong pent-up demand ready to absorb dips.
Final Thoughts
The OBBBA's $2.4 to $3.9 trillion in deficit spending and tax cuts, driving 4% to 6% M2 growth, is a powerful cocktail for risk assets. Combined with AI adoption, tariff clarity, and a dovish Fed, I continue to see upside to my 6,500 S&P 500 target into Q4 and an ambitious 7,000 by mid-2026.
Q2 earnings season should validate this constructive stance, as conservative guidance meets resilient demand and strong policy support. The market is broadening, moving beyond just tech giants and into financials, industrials, and selective consumer names. This isn't euphoric speculation, it's a disciplined, policy-supported advance.
Remaining invested, opportunistic, and adaptive isn't just advisable, it's essential.
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.