Good Morning Investors,
Markets stumbled as geopolitical tensions escalated sharply. After President Trump's call for Iran's "unconditional surrender" and threats of military action, Tuesday marked a moment of renewed anxiety. The S&P 500 fell back under 6,000, yields remained sticky, and defensive positioning resumed, not panic, but clear caution. The Fed looms large today, and while no cut is expected, Powell's tone will define whether September stays in play. But make no mistake: geopolitical shadows and fiscal fragility continue to weigh. This is a momentum market skating on increasingly thin ice.
Opening Bell
Futures are mixed ahead of today's FOMC decision. The S&P 500 ($SPY ( ▲ 1.54% ))fell 0.8% Tuesday to close back under 6,000, the Nasdaq ($QQQ ( ▲ 1.54% )) dropped 0.9%, and the Dow ($DIA ( ▲ 1.94% )) declined 0.7%. Defensive trades dominated as Iran tensions spiked. Oil jumped back to $75 per barrel on supply disruption fears, and gold retreated as safe-haven flows paused.
The 10-year Treasury yield held just under 4.25%, while the VIX ticked up as volatility expectations rose. Dollar strength against the Swiss franc reflected safe-haven demand amid escalating Middle East conflict.
Market Framework: All Eyes on Powell, But Geopolitics Speaks Louder
Today's Fed decision is expected to be uneventful on rates, but anything but on guidance. Powell is walking an even narrower path: acknowledge the inflation progress without giving the all-clear for aggressive easing, while navigating fresh geopolitical uncertainty. June's economic data supports the case for patience, not delay through fear, but caution through prudence.
But watch bond markets and oil prices, not just the press conference. The Iran-Israel conflict threatens to destabilize energy markets just as inflation showed signs of moderating. Trump's escalating rhetoric and consideration of military strikes adds a wildcard that monetary policy cannot easily address.
My Fed Call: Hold steady today, with a September cut guided as "data dependent" but increasingly uncertain. Watch for acknowledgment that geopolitical risks are now part of the policy calculus. I do believe we ultimately get the cut in September though. We have recently seen relief in the housing market, which has made up 75% of the inflation since 2020, and despite constantly calls, the tariffs haven't yet impacted inflation. The ECB also had inflation print below their target, showing global inflation prospects are improving.
Corporate Framework: Tech Under Pressure, Defensives Find Footing
Tech came under pressure as risk-off sentiment dominated. Tesla fell nearly 4%, with weak fundamentals in focus around Q2 deliveries (expected down 21%) and possible negative free cash flow in 2025. Apple weighed heavily on the S&P 500 as iPhone demand concerns persisted after a lackluster AI showcase.
However, AI infrastructure themes remained resilient. Meta's aggressive recruiting push, including reports of $100 million offers to OpenAI employees, underscores the talent war intensity. Deutsche Telekom’s 10,000-chip AI cloud project highlights European demand, while Nvidia’s Blackwell production is now hitting 30,000 wafers per month.
I remain bullish on the tech sector, and believe tech leads the markets to new highs towards the end of the year.
Nvidia: The Bellwether With Real Weight
Nvidia ($NVDA ( ▲ 1.72% )) remains the backbone of this AI cycle. Yes, it has corrected, but that is what quality leadership stocks do in volatile environments, they consolidate. Its $145 level is key to market psychology right now. This is not just technical, it’s about trust in a business that has built its dominance across chips, systems, and now infrastructure partnerships. From enterprise adoption to European cloud expansion, Nvidia is the artery through which the AI monetization story flows. My view: The runway for AI infrastructure is still in its early innings, and I expected Nvidia to move higher this year. My price target remains $180 at overweight.
Technology Evolution: AI Monetization Accelerates Despite Market Headwinds
The shift from hype to habit continues. Enterprise AI adoption is showing strong traction, with retention rates above 80% in second-month deployments. This is not speculative froth — it’s structural uplift.
Companies delivering measurable productivity gains are defending their multiples, even with headline pressure. The infrastructure buildout, from chips to inference optimization, still has years, not quarters, to run.
Economic Framework: Geopolitical Premium Returns to Markets
The 10-year yield's stickiness, despite cooling inflation, now reflects both fiscal pressure and a geopolitical risk premium. Oil volatility introduces new complexity to the Fed's inflation outlook just as progress was materializing.
Housing remains soft. Mortgage applications fell 3% despite rates easing to 6.84%. Weak sentiment and macro uncertainty continue to weigh on purchase decisions, even with marginal affordability improvement.
Strategic Outlook: Powell Faces New Variables, Markets Demand Clarity
Markets want Powell to acknowledge what's changed. Geopolitical risks are back, but economic fundamentals still support a patient Fed. If Powell delivers measured confidence without sounding dismissive of global tensions, equity resilience can return. But the margin for error is narrower.
The AI trade remains structurally sound, but quality rotation into defensives is appropriate. Macro data is supportive. But this is a market in search of leadership and clarity. Expect a 3% to 5% pullback before we base for the second-half rally.
Tactical Considerations
AI Thesis: Focus on infrastructure leaders with proven monetization. Nvidia’s $145 support level is a key barometer.
Bond Market: Geopolitical risk premiums now compete with fiscal concerns to drive yields.
Commodities: Oil volatility likely persists. Escalation, not rhetoric, will drive the next move.
Final Thought
This market has matured. But it’s also complicated. The Fed may have a clear economic case, but geopolitics don’t follow rate scripts.
Powell doesn’t need to be dovish today, just credible. That alone might stabilize sentiment. But the re-emergence of geopolitical risk premiums adds a layer of unpredictability markets haven’t had to reckon with in months.
Stay in quality. Stay alert. And position for resilience over reach.
👉 For more insights and macro coverage, subscribe here: https://dansheehan.beehiiv.com/subscribe
Dan Sheehan
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.