Market Pulse with Dan Sheehan

Good Morning Investors

Markets extended their winning streak Tuesday with the S&P 500 closing at another record high, marking the 11th closing record of 2025. The benchmark gained a modest 0.06% but remained well-supported above key levels. The Dow climbed nearly 180 points, while the Nasdaq fell 0.4% as chip stocks faced selling pressure. The character of this market remains constructive, with breadth continuing to broaden and earnings execution supporting valuations.

Futures Overview

Futures opened modestly positive Wednesday morning, with the Dow ($DIA ( ▲ 1.94% )) leading gains of 0.5% following Trump's announcement of a major trade deal with Japan. S&P 500 ($SPY ( ▲ 1.54% )) futures gained 0.4%, while Nasdaq-100 ($QQQ ( ▲ 1.54% )) futures advanced 0.2%, reflecting measured optimism around trade developments.

Key Catalysts Driving the Tape

Trump announced a "massive Deal" with Japan featuring 15% reciprocal tariffs on exports to the U.S., down from the threatened 25% rate on autos. Additional deals were struck with Indonesia and the Philippines, building momentum ahead of the August 1st trade deadline.

Alphabet and Tesla earnings after the bell represent the first major test of Big Tech this earnings season, with over 86% of S&P 500 companies beating expectations so far.

Energy sector strength continues as companies like EQT and Equinor report solid results, while travel demand recovery supports names like Hilton.

Market Structure & Breadth

Participation continues to broaden beyond the Magnificent Seven. While Tesla remains down nearly 18% year-to-date, other sectors including financials, energy, and industrials are contributing to market leadership. This rotation reflects a maturing, not peaking, bull cycle.

Alphabet - The AI Monetization Test

Google's ($GOOGL ( ▲ 3.17% )) parent company faces perhaps the highest expectations of any Big Tech name this earnings cycle, with analysts forecasting $2.17 EPS on $79.6 billion in revenue (excluding TAC), representing an 11.6% year-over-year increase from $71.3 billion in Q2 2024.

The AI Infrastructure Story: Alphabet stands as one of the largest and most advanced companies in AI, leveraging its vast data center network and Gemini AI models. CEO Sundar Pichai has highlighted that AI Overview is already drawing 1.5 billion users, with AI services generating 2x longer queries than traditional search, a potentially powerful monetization catalyst.

Revenue Breakdown Expectations:

The Investment vs. Returns Equation: Google is expected to deploy $75 billion this year expanding AI capabilities, including massive data centers running both proprietary chips and Nvidia processors. However, CFO Anat Ashkenazi previously noted the company continues facing AI capacity constraints as demand outstrips available computing power, a key metric investors will scrutinize.

The Antitrust Overhang: Judge Amit Mehta's ruling that Google violated antitrust law in search creates significant uncertainty. The judge could force Google to end exclusivity deals with Apple (setting Google as default search) or even mandate the sale of Chrome browser, potentially devastating to the search business that funds everything else.

What Success Looks Like: Investors want evidence that massive AI spending is translating to measurable revenue growth, particularly in Cloud where competition with Microsoft Azure and AWS intensifies. Any indication that AI capacity issues are resolving while maintaining search dominance would be viewed favorably.

Tesla - Navigating Political Headwinds and Execution Questions

Tesla's ($TSLA ( ▲ 6.22% )) earnings arrive at a challenging inflection point, with the stock down nearly 18% year-to-date despite broader market strength. Wall Street expects $22.79 billion in revenue (down 9% from $25.05 billion a year ago) and $0.43 adjusted EPS, representing a slight decline from previous year levels.

The Core Auto Business Under Pressure: Tesla's bread-and-butter vehicle sales face multiple headwinds. Q2 deliveries fell 13.5% year-over-year to just 384,122 vehicles globally, a concerning trend as competition intensifies and consumer preferences shift toward hybrids. The changeover to a refreshed Model Y may have temporarily blunted sales, but broader demand questions persist.

Geographic Weakness: European market struggles continue, while latest registration data shows U.S. sales sliding. Management faces questions about the refreshed Model Y availability timeline across key selling regions and whether demand issues are temporary or structural.

The Robotaxi Pivot: Musk's big bet on autonomous vehicles represents Tesla's potential future, but execution questions abound. Tesla has expanded robotaxi testing in Austin with a larger operating area, and Musk promised San Francisco Bay Area expansion, though state permit applications reportedly haven't been submitted yet.

The competitive landscape intensifies as Alphabet's Waymo leads in deployments, and Uber recently inked a massive deal with Lucid and Nuro for its own robotaxi service launching next year. Tesla needs to demonstrate tangible progress beyond testing to justify the premium multiple.

The Missing Cheap EV: A year ago, Tesla promised production of new vehicles, including a cheaper EV, in the first half of 2025. That timeline appears missed, with no renderings or production indicators for a ~$30,000 vehicle. Tesla's cheapest offering remains the Model 3 at ~$43,000 before incentives.

Political Complexity: Musk's rocky relationship with Trump adds uncertainty. While other auto stocks recovered from tariff concerns, Tesla faces 25% tariffs on foreign auto parts. The company's political exposure through Musk's activities may be impacting brand perception and demand.

The Capital Question: Barclays analyst Dan Levy suggests weaker fundamentals combined with capital needs for AV/AI rollout could eventually necessitate a dilutive share offering, precisely what Tesla investors don't want to hear.

What Investors Need to See: Clear robotaxi expansion timelines, progress on the cheaper EV model, stabilization in core auto demand, and evidence that the political overhang isn't permanently damaging the brand. Any discussion of capital raises would likely pressure the stock further.

Technology & Communications

AT&T delivered strong results, beating profit estimates and adding 401,000 net wireless subscribers versus 295,700 expected. The company plans $3.5 billion in fiber network investments from tax savings.

Energy Multiple energy names reported solid quarters:

Financials

Capital One reported strong Q2 results with net interest income rising 32.5% to $10 billion, though loan loss provisions increased significantly to $11.43 billion.

Industrials & Materials

Digital Assets & Crypto Strategy

Bitcoin trading remains range-bound as it enters the seasonally weak August-September period, though liquidity conditions remain favorable. Solana's rotation has intensified with SOL testing $205 levels after our previous call at $140.

The Trump Media versus MicroStrategy contrast continues to validate execution over pure bitcoin exposure as a strategy.

Trade Deal Progress

The Japan agreement (15% tariffs) represents significant progress, with additional deals struck with Indonesia and the Philippines. This builds pressure on the EU ahead of the August 1st deadline. The Detroit Three automakers raised concerns about the Japan deal potentially favoring Japanese imports over North American-built vehicles.

Market Implications

Trade deal momentum is providing upside catalyst for markets, with futures responding positively to reduced uncertainty around tariff implementation.

Major Deals

IPO Activity

NIQ Global raised $1.05 billion in its U.S. IPO, pricing 50 million shares at $21 each, valuing the company at $6.35 billion.

Today's Key Events

Market Signals

Consumer spending resilience continues with companies like Hilton raising profit forecasts on travel demand recovery. Housing market remains surprisingly stable despite rate environment.

I maintain my constructive stance as the market structure continues to improve. Key themes:

Technical Levels

Apple appears ready to outperform from a technical standpoint, potentially reaching the $230 level in a catch-up trade despite massive underperformance.

Tonight's Big Tech earnings represent a crucial test for market leadership, but the underlying structure remains sound. With trade deal momentum, broadening participation, and solid earnings execution, we expect continued upside with selective volatility.

Use any earnings-related weakness as opportunity to build positions in high-quality names rather than reason to fade the broader trend. The August 1st trade deadline provides a near-term catalyst, while the earnings backdrop supports fundamental valuations.

Cash remains a deployment tool, not a holding strategy, in this environment where strong execution is being rewarded.

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.