Good Morning Investors,
Markets showed impressive resilience to start the week. After opening lower on the back of Moody’s U.S. credit downgrade and cautious remarks from JPMorgan and Citigroup CEOs, stocks turned higher by the close. The S&P 500 notched its sixth consecutive gain, finishing just shy of 5,963, while the Dow rose 0.3% and the Nasdaq clung to a fractional gain.
What stands out isn’t the size of Monday’s move, it’s the message. In the face of rising yields, fiscal concerns, and lingering tariff uncertainty, investors are still buying. That tells me risk appetite is intact, and the market continues to price in strength beneath the surface, especially in Big Tech, where leadership remains clear.
Before the Bell
Futures are mixed this morning. S&P 500 contracts are down 0.3%, Nasdaq 100 futures off by 0.4%, while the Dow holds flat after Home Depot’s earnings beat lifted sentiment. Treasury yields are steady, the dollar is marginally weaker, and oil is inching lower amid headlines around U.S.-Iran diplomacy. In Asia, Chinese stocks posted modest gains after the PBoC surprised markets with a lending rate cut. European equities are flat to firmer.
Home Depot Shows Resilience
Shares of Home Depot are up over 2% pre-market after the home improvement giant posted better-than-expected revenue and reiterated its full-year outlook. While profit dipped and same-store sales missed, CFO Richard McPhail said the company doesn’t expect to raise prices in response to tariffs—a welcome sign of stability. Pro demand remained solid, and seasonal categories held up well heading into Q2.
Coinbase and the Crypto Conundrum
Coinbase’s inclusion in the S&P 500 is a major milestone—not just for the company, but for crypto’s continued institutionalization. The stock has surged 75% since early April and now sits at the heart of ETF and index fund allocations.
That said, it’s a textbook paradox: Coinbase is positioning itself as the gateway for decentralized finance while leaning heavily on the validation of traditional finance. The optics are strange, particularly with an SEC probe ongoing and a recent hack disclosure still fresh, but the momentum is undeniable. As Citigroup’s Jane Fraser noted, there’s a “confidence shock” happening underneath the surface. In that kind of environment, crypto starts to feel less like the outlier.
Big Tech: Leading, as Expected
I’ve said since the April lows that Big Tech would be the one to lead us out of this hole—and that’s exactly what we’re seeing. The Roundhill Magnificent 7 ETF (MAGS) is up over 13% this month, while QQQ has rallied nearly 10%. Tesla and Nvidia are both up 30% or more in the past four weeks, while Microsoft has quietly surged over 20%.
Yesterday I made the point that valuations on the Magnificent 7—while still premium to the broader market—are now at their lowest relative level since 2018. That doesn’t mean they’re cheap, but it does mean they’re justifiable. These aren’t speculative tech bets—they’re foundational to enterprise AI, cloud infrastructure, digital advertising, and semis. In a world that still needs growth, this cohort is proving again why it matters.
Moody’s Downgrade: Not a Crisis, But Not Irrelevant
Moody’s became the final member of the big three to strip the U.S. of its AAA rating, citing chronic deficits, rising interest costs, and a lack of fiscal discipline. The timing—after Friday’s close—suggests they knew the implications. But so far, markets have absorbed the move.
The downgrade may not spark immediate panic, but it does matter. As I wrote this weekend, 2025’s downgrade is different from 2011 and 2023, not because the market didn’t expect it, but because there’s now no AAA rating left. That chips away at the U.S.’s position as the unchallenged safe haven.
The real risk isn’t default—it’s supply. More Treasuries, fewer buyers, and persistently higher yields. The 10-year flirting with 4.5% puts pressure on growth stocks and risk appetite. It doesn’t mean we crash, it means we have to work harder for upside.
Closing Thoughts
The mood has shifted. Tariffs are paused but not resolved. Rates are elevated and unlikely to fall before September. The U.S. fiscal position is under formal scrutiny. And yet, markets are near all-time highs.
This tells me two things: First, the underlying demand for risk assets is strong, especially in high-quality tech and AI names. Second, the complacency that Jamie Dimon warned about yesterday might be more rational than it appears, at least in the short term.
Still, caution is warranted. The market’s rapid ascent since April has been impressive, but it’s also left little room for error. If yields spike again or trade talks stall, we could see another dip. But dips are buyable. And in my view, Big Tech’s leadership, Coinbase’s arrival, and improving sentiment around rates all support the idea that this isn’t just a bounce. It’s the next leg of the cycle.
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.