Good Morning Investors,
The market's resilience continues to astound.
Tuesday's session delivered another testament to the bull market's durability, with the Nasdaq 100 ($QQQ ( ▲ 0.18% )) notching its first record close since February and the S&P 500 ($SPY ( ▲ 0.18% )) climbing within 1% of all-time highs. The ceasefire between Israel and Iran remains intact despite early violations, oil has collapsed into the mid-$60s, and suddenly the macro backdrop looks remarkably constructive for risk assets.
This isn't coincidence; it's confirmation of the growth scare thesis I've maintained since March when pessimism peaked. What looked like a potential crash setup has morphed into a launch pad, and the technical picture suggests we're just getting started.
Opening Bell
Futures are subdued but stable as markets digest Tuesday's powerful rally. The S&P 500 sits at 6,092, tantalizingly close to its record high of 6,144. The Nasdaq 100's record close at 20,538 marks a psychological breakthrough that could unleash further momentum. Pre-market action is constructive, with modest gains across the major indices.
Oil's dramatic reversal continues, with WTI crude consolidating in the mid-$60s after falling 13% in two days. This energy deflation is providing a dual boost: easing inflation pressures while reducing input costs for corporate America. The VIX has collapsed toward 16, signaling a return to risk-on sentiment.
Asian markets extended gains overnight, with Shanghai hitting six-month highs and Hong Kong at its strongest level since March. Japan's Nikkei reached four-month peaks led by semiconductor stocks tracking U.S. tech strength. European markets opened mixed but remain supported by dovish Fed expectations and geopolitical stability.
Market Framework: Resilience Breeds Opportunity
The speed of this reversal validates a core investment principle: buy quality during crisis moments. Tuesday's surge wasn't just relief; it was recognition that fundamental conditions remain supportive despite headline noise.
The Nasdaq's breakout is particularly significant. After languishing below previous highs since February, the index has reclaimed leadership as AI earnings momentum accelerates and rate cut expectations solidify. This technical breakthrough often precedes sustained rallies, especially when backed by improving fundamentals.
Oil's collapse from $79 to the mid-$60s represents one of the fastest geopolitical risk premium unwinding in recent memory. Prediction markets that priced a 52% chance of Strait of Hormuz closure just days ago now show minimal concern. This rapid sentiment shift illustrates how quickly macro headwinds can transform into tailwinds.
Strategic Implications: The market is demonstrating classic late-cycle resilience: the ability to absorb shocks and continue advancing. This behavior typically occurs when underlying economic conditions remain sound despite episodic volatility. The key insight is that temporary disruptions create opportunity, not existential risk.
Economic Framework: Powell's Balanced Message
Fed Chair Powell's testimony to Congress struck the perfect tone for risk assets. While maintaining the Fed's patient approach, his acknowledgment that "many paths are possible" including "cutting sooner" provided markets with the optionality they crave.
The critical shift: Fed Governor Michelle Bowman's conversion from hawk to dove removes a key dissenting voice. Her June 23rd speech highlighted "signs of fragility in the labor market" and argued for "putting more weight on downside risks to our employment mandate." This hawkish-to-dovish pivot suggests FOMC consensus is building around accommodation.
Consumer confidence's unexpected decline to 93 in June from 98.4 in May adds ammunition to the dovish case. The labor market differential, the gap between those saying jobs are "plentiful" versus "hard to get", fell to just 11.1 percentage points, the lowest since March 2021. This soft data deterioration provides cover for preemptive Fed action.
Today's Economic Calendar: New home sales data and building permits will test housing market resilience amid higher rates. Any weakness could reinforce the Fed's dovish tilt, while strength might argue for continued patience.
Powell's Calculation: The Fed Chair faces declining political pressure as geopolitical risks recede and inflation expectations moderate. Oil's collapse removes a key inflation concern, while softening labor data provides justification for action. September rate cuts are now priced with roughly 70% probability, a marked shift from last week's hesitation.
Corporate Framework: Earnings Momentum Building
Tonight's results from Micron Technology represent a critical test for the AI infrastructure theme. The memory chip giant's guidance will signal whether semiconductor demand remains robust or is experiencing the cyclical slowdown some bears anticipate.
FedEx's cautious outlook, forecasting Q1 earnings of $3.40–4.00 per share versus $4.06 expected, highlights global trade uncertainties but also positions for positive surprises if conditions improve. The logistics bellwether's reluctance to provide full-year guidance reflects tariff policy uncertainty, but history shows conservative guidance often leads to beats.
Regulatory Framework Shifts: The SEC's discussions with exchanges about easing public company regulations could unlock IPO activity and boost market liquidity. Combined with potential tax reform, these structural changes support the bull case for sustained market expansion.
Weight-Loss Drug Persistence: The revelation that 63% of patients remain on Wegovy or Zepbound after one year, up from 40% in 2023, validates the billion-dollar opportunity for Eli Lilly and Novo Nordisk. This secular growth theme remains underappreciated by markets.
Strategic Outlook: Bull Market Broadening
This rally exhibits the characteristics of a maturing bull market, one that's becoming more resilient to external shocks while broadening beyond mega-cap technology. The key insight: we're witnessing leadership expansion, not concentration.
Technical Analysis: The Nasdaq 100's record close breaks a five-month consolidation and targets 21,500–22,000 over the next quarter. The S&P 500's approach to all-time highs on solid volume suggests institutional participation is accelerating. Key resistance at 6,144 should yield to continued buying pressure.
Nvidia's ($NVDA ( ▼ 0.02% )) 3% Tuesday gain pushes the AI leader within striking distance of its January record at $149.43. My short-term target of $152 remains intact, with longer-term potential toward $180 as AI infrastructure spending accelerates. The semiconductor leader's performance often presages broader tech sector moves.
Tactical Considerations
Nvidia Leadership: Maintain core positions in AI infrastructure leaders. Tuesday's 3% gain toward record highs validates the secular growth thesis. Near-term target $152, longer-term $180.
Rate Sensitivity: Position for September Fed cuts through growth stocks and rate-sensitive sectors. Technology, consumer discretionary, and small-caps should benefit from easier policy.
Broadening Theme: Rotate beyond mega-caps into quality mid-caps and international exposure. European and emerging markets offer compelling value as Fed policy turns accommodative.
Energy Deflation: Oil's collapse creates winners in transportation, airlines, and consumer-facing businesses. FedEx's weakness may prove temporary as fuel costs decline.
Quality Over Defense: Avoid rotating into bonds or utilities despite recent strength. Equity risk premiums remain attractive with rates likely falling.
Key Levels to Watch
S&P 500: Critical resistance at 6,144 all-time high; break above targets 6,250–6,300
Nasdaq 100: Record high at 20,538 opens door to 21,500
WTI Crude: Consolidating $64–68; sustained move below $60 would accelerate disinflationary forces
10-Year Treasury: Key support at 4.25%; break below signals dovish sentiment acceleration
VIX: Approaching 15; break below signals complacency return but also validates bull thesis
Final Thought
The market's message is clear: resilience breeds opportunity. Tuesday's breakout validates the thesis that temporary shocks create entry points rather than exit signals in sustained bull markets.
The convergence of dovish Fed policy, declining oil prices, and accelerating AI earnings provides a compelling backdrop for continued gains. The Nasdaq's record close isn't the end of the rally, it's the beginning of the next phase.
History shows that markets breaking to new highs amid improving fundamentals typically extend those gains over 6–12 months. With the Fed likely to cut rates, oil providing disinflationary relief, and corporate earnings accelerating, the path of least resistance remains higher.
The key insight for investors: this bull market is maturing, not ending. Broadening leadership, improving liquidity conditions, and structural tailwinds support continued advance. Use any volatility as opportunity to add quality growth exposure.
As I've maintained since March when pessimism peaked: this was always a growth scare, not the start of a recession, but the start of something bigger. The market's resilience continues to validate that view, and the best may be yet to come.
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Dan Sheehan
This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor about your specific situation.