Market Pulse with Dan Sheehan

Good Morning Investors,

Markets are threading the needle between cautious optimism and lingering uncertainty as we kick off a critical week for both policy and corporate developments. The S&P 500 sits just 2% from all-time highs after a solid rally that brought the index back above 6,000 for the first time since February. But beneath the surface, cross-currents are building that could determine whether this momentum continues or stalls.

Futures are mixed to start the week, with the S&P 500 up 0.1% and the Dow adding 44 points. Friday's jobs report painted a mixed picture—139,000 jobs added in May, above the 125,000 expected but below April's revised 147,000. Unemployment held steady at 4.2%, but the details revealed underlying softness that has some economists concerned about Fed policy timing.

The headline number was good enough to ease recession fears, but the ADP private payroll report earlier in the week hit its lowest level in over two years, prompting fresh calls from President Trump for the Fed to cut rates. Treasury yields shot up despite the mixed signals, with the 10-year hovering around elevated levels as rate cut expectations remain fluid.

We're entering a macro-heavy stretch that could define the next leg of this rally. Wednesday's CPI report will be the first real test of whether Trump's tariff policies are flowing through to consumer prices. Headline CPI is expected to tick up to 2.5% from 2.3%, with core rising to 2.9%—not exactly Fed-cut territory.

The trade situation remains the wild card. US-China talks kick off in London today, offering hope for progress after a phone call between Trump and Xi last week. But with Trump's July 9th deadline approaching and only one partial trade deal (with the UK) out of 60-70 countries hit with reciprocal tariffs, tangible progress is needed to sustain market confidence.

Meanwhile, the Trump-Musk feud has added an unexpected wrinkle. After Musk called Trump's "One Big Beautiful Bill" a "disgusting abomination," Trump fired back, threatening to "terminate Elon's Governmental Subsidies and Contracts." Tesla dropped 14% in its worst single-day loss in history before recovering modestly. The spat underscores the political volatility still lurking beneath market surfaces.

Apple's WWDC kicks off today with expectations muted compared to last year's AI showcase. The company is reportedly rolling out its biggest iOS redesign since 2013, adopting Vision Pro-inspired aesthetics across all platforms. More importantly, Apple may finally deliver on long-delayed AI promises, including improvements to Siri and new AI-powered battery management. With the stock down 18% this year, Apple needs to prove it hasn't fallen behind in the AI race.

GameStop reports Tuesday after announcing a $500 million bitcoin purchase, following MicroStrategy's playbook as its core gaming business declines. The meme stock darling is attempting a crypto pivot that could either reinvigorate the brand or highlight its fundamental challenges.

Oracle and Adobe report mid-week as key AI infrastructure plays. Oracle has been quietly gaining market share in GPU cloud clusters, while Adobe's AI integration across creative tools remains a key growth driver. Both will be closely watched for AI spending trends and enterprise adoption rates.

The recent rally has been notably broad-based, with cyclicals leading the charge—a positive sign for economic health. Industrials remain particularly attractive, driven by secular themes including aerospace/defense spending, reshoring trends, and AI infrastructure buildout. These are "tariff-independent" growth stories that can sustain regardless of political developments.

Technology continues to show leadership despite lofty valuations. The semiconductor complex, led by Nvidia's $3.2 trillion market cap, faces the ongoing question of sustainability. With earnings growth exceeding 80% year-over-year, the focus has shifted from "is it expensive?" to "is it defensible?"

Consumer staples remain the only sector worth underweighting, as defensive positioning gives way to growth-oriented allocations.

This feels like an early bull market environment, supported by several technical and fundamental factors that suggest more upside ahead. The ISM Manufacturing PMI remains below 50 (indicating contraction), and historically, the S&P 500 hasn't peaked until this index moves above 50. May's reading of 48.5 suggests significant room to run.

Key support levels are holding firm. The S&P 500 trades 2.6% above its 200-day moving average, while the Nasdaq sits over 5% clear of key trendlines. Market breadth remains stable without being euphoric—a healthy backdrop for continued gains. The recent rally's broad-based nature, with cyclical leadership across sectors, reinforces the underlying economic resilience narrative.

I maintain high conviction that April's sharp drawdown marked the end of the correction cycle. The subsequent rebound has validated this thesis, with momentum indicators and sector rotation patterns all pointing toward sustained strength. We're seeing the kind of "good news is good news, bad news is also good news" environment that characterizes bull market phases.

The trade deficit improvement, while creating near-term inventory concerns, should provide GDP tailwinds in Q2 after being a drag in Q1. This cyclical shift supports the broader reflation narrative, particularly if trade tensions begin to ease through the London talks and subsequent negotiations.

From a positioning standpoint, I continue to favor technology leadership, particularly semiconductor names that have driven recent gains. The AI infrastructure buildout remains in early innings, with companies like Nvidia, Oracle, and Qualcomm benefiting from secular adoption trends that transcend political cycles.

Industrials offer compelling secular stories tied to aerospace/defense spending, reshoring initiatives, and AI infrastructure deployment—themes that are "administration independent" and can sustain through various policy outcomes. Small-caps and cyclicals deserve attention if Fed dovishness materializes, as these sectors typically lead during monetary easing cycles.

The path forward depends on three key variables:

My base case targets the 6,100 area for the S&P 500 over the summer, assuming we achieve some combination of trade progress and inflation moderation. The momentum cross-over suggests that even if we see near-term churning, an eventual push higher into August remains likely. Consumer sentiment stabilization around tariff concerns, combined with continued institutional flows into risk assets, should support this trajectory.

Any pullbacks should be viewed as buying opportunities rather than structural breaks. The longer-term bull market thesis remains firmly intact.

Apple (AAPL): Citi raises target to $225 ahead of WWDC, citing AI integration potential and software redesign catalyst.

Oracle (ORCL): Barclays reiterates Overweight with $145 price target on AI cloud infrastructure traction and GPU cluster expansion.

Booking Holdings (BKNG): BofA Global Research raises target to $5,820 from $5,580, expecting Q2 beat supported by stable international travel.

Qualcomm (QCOM): Benefits from $2.4 billion Alphawave acquisition to strengthen AI portfolio and high-speed connectivity capabilities.

Landstar System (LSTR): Barclays initiates coverage at $145 target, citing exclusive arrangements and cost structure advantages.

Lululemon (LULU): Barclays cuts target to $270 from $276 after guidance reduction due to tariff impact and soft US traffic.

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We're at an inflection point where the market wants to move higher but needs permission slips from both policy and fundamentals. The S&P 500's push above 6,000 signals underlying strength, but the sustainability of this rally hinges on the week ahead.

Trade talks offer hope for reduced uncertainty, while inflation data will determine Fed flexibility. Corporate earnings, particularly in AI-sensitive sectors, need to justify current valuations.

My base case remains constructive for a push toward 6,100 over the summer, assuming we get some combination of trade progress and inflation moderation. Any pullbacks should be viewed as buying opportunities rather than structural breaks.

The longer-term bull market thesis remains intact: rate cuts are coming (just slower than hoped), the AI cycle is undercapitalized in many portfolios, and defensive positioning is giving way to growth allocation.

Stay disciplined. This isn't the time for short-term tactical trades—it's time to ride the structural momentum.

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.