Market Pulse with Dan Sheehan

Good Morning Investors,

Markets showed resilience on Wednesday despite Fed uncertainty. The S&P 500 ($SPY ( ▲ 0.18% )) gained 0.2%, the Dow ($DIA ( ▲ 0.26% )) climbed 0.5%, and the Nasdaq ($QQQ ( ▲ 0.18% )) edged up 0.1%. A midday wobble followed reports that President Trump floated firing Fed Chair Powell, but markets recovered as the statement was walked back. Nvidia reversed early gains, dragging semis slightly, while banks held steady ahead of CPI and Powell's speech.

The session highlighted the market’s growing comfort with navigating headline volatility while maintaining focus on fundamentals. Despite the Fed uncertainty creating temporary ripples, the broader trend remains constructive with institutional capital continuing to flow into risk assets at a measured pace.

Key Market Drivers Q2 earnings season is accelerating with 85% of companies beating estimates. Fed policy remains a wildcard, the growth-to-value rotation is stalling, and institutions continue deploying capital at a measured pace. The earnings engine continues to fire across sectors, with particular strength in technology and financial services.

Opening Bell: Positioning Ahead of CPI and Powell

Futures are mixed this morning. S&P 500 futures are down 0.3%, Nasdaq off 0.4%, while Dow futures have slipped 0.2%. The focus today is June's CPI print and Fed Chair Powell's speech at the Economic Club of New York. Markets expect core CPI to remain around 3.4%. Any deviation will likely affect the probability of a September rate cut.

The bond market’s response will shape equity positioning, especially with next week’s mega-cap earnings in view. If Powell leans dovish, we could see a reacceleration in risk-on flows. Conversely, any hawkish tilt could trigger another wave of growth-to-value rotation.

The Powell Situation: A Strategic Tool for Dollar Policy

The ongoing tension between President Trump and Fed Chair Powell represents more than just Fed independence concerns, it’s become a de facto dollar policy mechanism. Trump’s public pressure campaign has effectively weakened the dollar without formal intervention, boosting export competitiveness while maintaining overall market stability.

This dynamic bears close monitoring as it could reshape traditional monetary policy transmission. September rate cut probability now sits at 56% (down from 70% last week), while the yield curve steepening trend continues. The dollar weakness strategy through Fed jawboning is showing early success, though market tolerance testing continues with yields approaching critical levels.

Strategic Outlook: Structural Bull Case Intact

The earnings engine is running, policy support is building, and sentiment is constructive but far from euphoric. S&P 500 earnings for 2026 are approaching $300 per share. Even at a 21x forward multiple, there’s further upside. Tariffs remain noise. The market is pricing in adaptability from global multinationals.

Current market structure suggests we’re in a sideways consolidation rather than a breakdown. The S&P 500 has essentially moved sideways for two weeks, down just 15 points from the July 3rd close. This represents a healthy breather rather than a trend reversal. Key support levels (6237 on SPX, 551.63 on QQQ) have held firm, and any weakness has been met with buying interest.

The resilience during this consolidation phase reinforces the underlying bull case. Markets don’t need fireworks every day to maintain their upward trajectory. The path of least resistance remains higher, with cash continuing to come off the sidelines as investors recognize the sustainability of the current cycle.

Semiconductors: Highs, but Not Overheated

Semis are ripping to all-time highs, but valuations are still attractive.

Here’s the data: June 2024:

Today:

Bottom line: semis are cheaper today despite record weighting in the index. Demand is outstripping supply. I believe this sets the stage for a sharp move higher. Selloffs like ASML’s 8% drop on Wednesday should be viewed as buying opportunities.

The semiconductor complex is benefiting from multiple tailwinds: AI infrastructure buildout, data center expansion, and edge computing growth. TSMC’s record quarterly profits, with net income surging 61% year-over-year, demonstrate the robust demand environment. The company’s guidance for 30% full-year revenue growth in USD terms, up from previous “mid-20s” expectations, underscores the strength of this cycle.

Sector Strategy & Positioning

I remain overweight tech and AI, with a focus on cyber and software. Software has gained strength, as seen in the IGV ETF, which I highlighted around $80 and now trades near $109. Yet relative to semis, there’s still upside. Cybersecurity remains one of my top-performing themes.

The AI infrastructure theme is creating a multi-year capex explosion. Enterprise adoption curves remain robust, with software and hyperscalers positioned to lead. Microsoft and Nvidia are particularly well-positioned for next week’s earnings, while the broader tech cohort needs to demonstrate execution to maintain momentum.

This will likely be a bullish earnings season for Tech and AI. I expect use cases and capex to dominate the narrative. Microsoft and Nvidia are positioned to impress, while the rest of big tech must show strength to maintain momentum.

Financials remain a favored overweight due to resilient loan growth, improving NIMs, and capital return. The sector’s ability to generate profits across different market conditions was evident this week, with collective second-quarter trading and investment banking revenues rising 17% and 7% respectively.

Energy remains tactically underweight short-term but could see a second-half rebound as AI infrastructure places new demand on energy inputs. Crude oil’s technical breakdown suggests vulnerability to a drift toward $61 or even $55, but the longer-term setup remains constructive as AI buildout tightens demand for power and reliable inputs.

Risk Monitoring Framework

I’m closely watching labor market health through initial claims, quits rate, and wage data. Sticky services inflation remains a concern. Consumer spending and corporate credit spreads will help validate the resilience of the growth narrative. Any tariff-related inflation bump in Q3 is likely to be bought, not feared.

The market’s ability to climb the wall of worry remains impressive. Bears have had two full weeks to press their case during this consolidation period, and they haven’t moved the needle. Until that changes, the structural bull case remains intact.

Earnings Season Deep Dive: Q2 Catalyst Calendar

This Week:

Next Week:

Key metrics include margin expansion, free cash flow, capital return, and forward guidance. The balance between revenue growth and margin expansion remains critical for valuation sustainability.

Federal Reserve & Policy Landscape

The Powell narrative has evolved into a functional tool for dollar policy. Trump’s pressure campaign is weakening the dollar without formal intervention, helping U.S. exporters while the Fed maintains stability. Rate cut odds for September have fallen to 56% from 70% last week. The yield curve continues steepening, and 10-year yields are testing 4.5%.

This unconventional approach to monetary policy influence is showing early success. The dollar’s weakness is helping U.S. exporters while maintaining overall market stability. However, the market’s tolerance for this strategy will be tested if yields continue to rise toward problematic levels.

Digital Assets: Institutional Momentum Building

Bitcoin is holding firm around $117,500. ETF inflows remain strong, and volatility is declining ahead of Crypto Week in Washington. Gold is above $2,400 and real yields are showing signs of peaking, reinforcing the bullish macro environment for digital assets.

Altcoins in Motion

Ethereum ($ETH.X ( ▲ 3.22% )) and Solana ($SOL.X ( ▲ 8.91% )) made sharp moves after recent consolidation. I believe both are setting up for catch-up trades with potential near-term upside. $SBET ( ▼ 1.0% ) also surged following recent mentions in this newsletter. Bitcoin needs to hold above $115,000 and consolidate above $120,000 to launch the next leg of the rally toward $136,000.

The crypto market is maturing, with decreasing volatility and growing institutional participation. ETF flows remain strong, and regulatory clarity is improving the investment landscape.

Analyst Recommendations & Price Target Updates

Rotation Trends: Analysts are warming back up to tech hardware and financials. Healthcare is gaining traction. Energy remains mixed but attractive on valuation.

Final Thoughts: Earnings, Not Headlines, Still Drive This Market

In a market full of noise, tariffs, Fed posturing, and political theatre, one signal continues to cut through: earnings. With inflation anchored, liquidity steady, and institutional money stepping in, the path higher remains open, even if it won’t be linear. The next few weeks will test leadership in AI, software, and financials, but the structural drivers behind this rally remain intact.

Valuations are digesting, volatility is contained, and capital is being deployed into strength. This isn’t euphoria, it’s a methodical climb supported by real cash flow, margin expansion, and strategic repositioning. As long as fundamentals are this resilient, pullbacks are opportunities, not warnings. Don’t get lost in the headlines, let the earnings guide your exposure.

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

[email protected]

This newsletter is for informational purposes only and should not be considered investment advice. Please consult your financial advisor about your specific situation.