Market Pulse with Dan Sheehan

Good Morning Investors,

Markets took a breather Tuesday after a strong run. The S&P 500 slipped 0.4%, the Dow dipped 0.3%, and the Nasdaq was flat—hardly a rout, but enough to hint that some consolidation might be ahead. This follows six straight days of gains that had left major indices hovering near highs, and as I’ve said before, a retest of key technical levels—like the 200-day moving average—wouldn’t be unhealthy. Some short-term tension is returning, particularly in bonds and trade policy. I’ve flagged both as likely catalysts for a short-term pullback, and they’re now back in focus.

Before the Bell

Futures are pointing lower again this morning. The S&P 500 is down 0.4%, Nasdaq 100 futures are off 0.4%, and the Dow is tracking a 0.7% drop. Bond yields are still climbing, with the 30-year above 5% and the 10-year nearing 4.55%. Oil is up 1% on Middle East tensions, gold is higher as the dollar softens, and Asian markets closed mixed after trade tensions flared back up.

Bond Market Watch

Treasury yields climbed again Tuesday, with the 10-year pushing past 4.5% and the 30-year touching 5%. These are levels that have historically acted as pressure points for risk assets, and the renewed rise reflects growing anxiety over U.S. fiscal policy. With Moody’s recent downgrade still echoing and Trump’s tax bill threatening to widen the deficit, the bond market is demanding higher term premiums. If yields continue to climb—particularly if the 10-year breaks above 4.6%—it could spark more volatility in equities. As I’ve said previously, we’re entering a stretch where long-end yields may act as the market’s most important tell.

Trade Tensions Rekindle

Just days after a promising U.S.-China tariff pause, the détente is already fraying. The Trump administration’s warning against Huawei’s AI chips has drawn sharp criticism from Beijing, with China’s Commerce Ministry threatening legal retaliation. Nvidia’s CEO Jensen Huang didn’t mince words, calling the original AI chip export curbs a “failure” that cost American firms billions. The back-and-forth puts the 90-day tariff truce on shaky ground and reminds investors that trade remains the dominant macro risk. It reinforces the view I’ve held since early May—that any sustained rally still hinges on a durable resolution to trade tensions.

Target Feels the Pressure

Target slashed its full-year outlook after a weak Q1, citing lower discretionary spending, tariff uncertainty, and backlash over DEI policy rollbacks. Same-store sales dropped 3.8%, and average transaction size fell 1.4%. CEO Brian Cornell acknowledged missed expectations and promised action via a new internal unit—the Enterprise Acceleration Office—focused on simplifying operations and reviving growth. Tariffs are clearly biting. Target says it will raise some prices, but specifics remain vague. The stock is down over 3% pre-market.

Lowe’s Shows Relative Strength

Lowe’s posted a smaller-than-expected 1.7% drop in same-store sales, outperforming Target and echoing Home Depot’s resilience. The company reaffirmed guidance for flat-to-slightly-up comps in 2025, and investors welcomed the steadiness with a modest pre-market gain. The takeaway? Big-ticket renovation may be down, but maintenance and DIY remain stable.

Nvidia Slams AI Chip Curbs

CEO Jensen Huang criticised previous U.S. export restrictions on AI chips as a "failure" that backfired, costing U.S. firms billions and strengthening Chinese competitors. His comments came just days after the Trump administration signalled a partial reversal of those curbs. This will be one to watch: Nvidia is up 80% year-to-date and remains the heart of the AI infrastructure trade.

Big Tech’s Reassertion

As I said weeks ago, Big Tech would lead us out of the hole—and they’ve done just that. From the April lows, names like Nvidia, Tesla, and Microsoft have powered the rally, with the MAGS ETF up over 13% this month alone. I made the case earlier this week that valuations—while still premium—are more justifiable than they’ve been in years. These aren’t just growth names anymore; they’re infrastructure plays for the AI age, with strong cash flows, defensible moats, and global demand tailwinds. In a world where debt costs more and capital needs to be efficient, these are the businesses investors are turning to.

Analyst Recommendations

Closing Thoughts

Tuesday’s pullback wasn’t surprising. Yields back above 4.5% and renewed trade flare-ups were two catalysts I flagged as potential stumbling blocks. Now they’re both back in focus. Markets are still near highs, but the mood has shifted slightly. Trade peace looks less certain, and fiscal worries are growing louder.

Still, I’d frame this as a consolidation, not a collapse. Target’s miss and the tick higher in yields will grab headlines, but the broader equity trend remains intact—at least for now. I continue to believe that a short-term pullback to test the 200-day moving average is not only possible, but constructive. That would help confirm the rally’s strength and shake out weaker hands. Longer-term, I remain optimistic that with trade resolutions and fiscal clarity, we can extend the rally into the second half of the year—and potentially retest all-time highs.

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.