Market Pulse with Dan Sheehan

Good Morning Investors,

Markets are holding steady in cautious anticipation as US-China trade negotiations enter their second day in London. The S&P 500's ability to maintain its footing above 6,000 reflects underlying resilience, even as investors parse every diplomatic signal for clues about tariff resolution. Yesterday's modest gains—with the S&P up 0.1% and Nasdaq advancing 0.3%—suggest markets are cautiously optimistic but waiting for concrete progress.

The trade talks represent the most significant diplomatic engagement since tensions escalated, and early signals from US Commerce Secretary Howard Lutnick indicate productive discussions. However, the real test comes as negotiators tackle thorny issues around rare earth minerals and technology transfers that have been at the heart of the dispute.

Before the Bell

Futures are muted this morning, with modest declines in Dow futures while S&P 500 and Nasdaq contracts hover near flat. The market's restrained tone reflects the delicate balance between hope for trade progress and recognition that substantial obstacles remain. Small business optimism data due this morning should provide insight into how Main Street views the current economic landscape.

Inflation expectations continue to moderate, with the NY Fed's latest survey showing one-year inflation expectations dropping to 3.2%—a meaningful 0.4 percentage point decline from April. This cooling in inflation psychology, combined with the temporary tariff truce, appears to be providing some relief to business sentiment.

Market Framework

We're in a critical window where trade diplomacy could determine market direction through summer. The current 90-day pause on reciprocal tariffs expires in roughly a month, creating a hard deadline for meaningful progress. Markets have shown they can rally on hope, but sustained gains will require concrete agreements.

Wednesday's CPI report looms as the next major catalyst. With headline inflation expected to tick up to 2.5% and core CPI rising to 2.9%, the data will test whether recent tariff moderation is flowing through to consumer prices. Any surprise to the upside could complicate Federal Reserve policy calculations and market assumptions about rate cuts.

The backdrop remains supportive for risk assets. Small business optimism jumped three points to 98.8 in May—the first increase since December—largely attributed to trade tension de-escalation. However, uncertainty around tax policy and the fate of Trump's comprehensive spending bill continues to create headwinds.

Technology Sector Developments

Apple's WWDC presentation revealed significant software overhauls but fell short of Wall Street's AI expectations. The new "Liquid Glass" design aesthetic represents the biggest iOS redesign in years, yet the measured approach to artificial intelligence integration suggests Apple is charting a deliberate, differentiated path rather than rushing to match competitors.

IBM's quantum computing announcement stands out as genuinely transformative. The company's plan to deliver the "Starling" quantum computer by 2029—capable of 200 logical qubits and fault-tolerant operations—represents a meaningful leap toward practical quantum applications. With IBM shares hitting all-time highs and up over 60% this year, the quantum computing thesis is gaining institutional traction.

Amazon's AI strategy through AWS Bedrock continues to differentiate through its marketplace approach, allowing customers to choose among multiple AI models rather than forcing a single solution. This flexibility could prove advantageous as the AI landscape continues evolving.

Corporate Earnings Focus

GameStop reports today amid its controversial pivot to cryptocurrency, having announced a $500 million bitcoin purchase. The meme stock's attempt to replicate MicroStrategy's crypto strategy will be closely watched as a test case for traditional retailers embracing digital assets.

Oracle reports Wednesday with expectations elevated around AI infrastructure growth. The company's success in GPU cloud clusters and enterprise AI adoption will provide insight into the sustainability of current AI investment levels.

Adobe's Thursday report will be particularly important for understanding creative software demand and AI integration progress across professional tools.

Sector Positioning

The recent rally's broad-based nature continues to support a constructive outlook. Industrials remain particularly attractive, benefiting from secular themes including defense spending, reshoring initiatives, and AI infrastructure deployment—stories that transcend political cycles.

Quantum computing represents an emerging theme worth monitoring. Beyond IBM, companies like IonQ, D-Wave, and major tech players are making meaningful progress. While current valuations may reflect optimism ahead of reality, the sector's long-term potential remains substantial.

Bitcoin and Risk Asset Catalysts

Bitcoin's renewed push toward all-time highs deserves focused attention, particularly as we approach the Bank of Japan's June 16-17 monetary policy meeting. The cryptocurrency struggled near previous highs yesterday but remains well-positioned for the next leg higher as global liquidity conditions continue evolving favorably.

I've been tracking Bitcoin against M2 money supply for some time, and the correlation remains compelling. The relationship suggests we're approaching another inflection point where monetary expansion could drive significant outperformance in digital assets. With central banks globally maintaining accommodative stances despite inflation concerns, the monetary debasement thesis that drives Bitcoin adoption continues strengthening.

My $150,000 price target for Bitcoin—which I've maintained across multiple newsletter editions—remains intact and increasingly achievable as institutional adoption accelerates. The recent corporate treasury adoption trend, exemplified by GameStop's $500 million bitcoin purchase, demonstrates growing acceptance of cryptocurrency as a legitimate store of value.

The Bank of Japan's upcoming decision could serve as the next major catalyst for risk assets broadly. Any signals of continued monetary accommodation or intervention in bond markets would likely benefit both equities and cryptocurrencies. The global monetary policy coordination we're witnessing creates a supportive backdrop for assets that benefit from currency debasement concerns.

Strategic Outlook

The market's ability to hold above 6,000 on the S&P 500 while digesting trade uncertainty demonstrates underlying strength. Technical levels remain supportive, with the index trading comfortably above key moving averages and breadth indicators showing healthy participation.

My conviction remains high that we're in the early stages of a sustained bull market, supported by several factors: the ISM Manufacturing PMI below 50 historically precedes further gains, momentum indicators remain constructive, and defensive positioning continues giving way to growth allocation.

The path forward hinges on three key developments: trade progress in London talks, Wednesday's inflation data, and corporate earnings maintaining AI growth narratives. Success on even two of these fronts should support continued upward momentum.

Target levels remain unchanged, with 6,100 on the S&P 500 achievable over the summer assuming reasonable progress on trade and inflation moderation. Any pullbacks should be viewed as buying opportunities rather than structural threats to the bull thesis.

Week Ahead Calendar

Tuesday

Wednesday

Thursday

Friday

Analyst Updates

Oracle (ORCL): Morgan Stanley raises target to $175 from $160 ahead of quarterly results, expecting strong bookings momentum.

Carvana (CVNA): BofA raises target to $375 from $325, anticipating continued market share gains in used auto sales.

ArcBest (ARCB): BofA raises target to $74 from $63, highlighting solid momentum with core customers.

Closing Thoughts

We're navigating a delicate moment where diplomatic progress could unlock significant market upside, while setbacks could create near-term volatility. The S&P 500's resilience above 6,000 suggests institutional conviction remains strong, but the sustainability of current levels depends on concrete developments this week.

Trade talks offer the biggest catalyst for sustained momentum. Success here could remove a major uncertainty overhang and validate the bull case for the remainder of the year. Wednesday's inflation data will determine Federal Reserve flexibility and rate cut expectations.

Maintain disciplined positioning focused on quality growth themes: AI infrastructure, quantum computing, and sectors benefiting from secular trends independent of trade outcomes. The longer-term structural bull market remains intact—we're simply waiting for the next catalyst to drive the next leg higher.

Stay focused on fundamentals while remaining nimble around event-driven volatility. This environment rewards patience and strategic positioning over tactical trading.

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.