Market Pulse with Dan Sheehan

Good Morning Investors

Markets are navigating heightened geopolitical uncertainty as the Israel-Iran conflict escalates, with President Trump set to decide within two weeks on potential U.S. military involvement. Despite this backdrop, equities showed resilience Wednesday before the Juneteenth holiday, with the Dow ($DIA ( ▲ 1.95% )) closing 200 points higher and the S&P 500 ($SPY ( ▲ 1.59% )) climbing to 5,970.37 - just 30 points shy of the psychologically important 6,000 level. The Nasdaq moved into positive territory for 2025, lifted by renewed strength in AI-focused names including Nvidia ($NVDA ( ▲ 1.66% )) . Tech remains the leader ($QQQ ( ▲ 1.63% )).

Futures are pointing to a slightly lower open Friday morning as investors digest geopolitical developments and await President Trump's decision on U.S. involvement in the Middle East conflict. With U.S. markets closed Thursday for Juneteenth, global markets reflected the ongoing tension, with oil prices mixed and safe-haven assets seeing modest flows.

The 10-year Treasury yield remains anchored around 4.42%, showing remarkable stability despite the geopolitical backdrop. The VIX remains surprisingly subdued below 15, suggesting markets are treating the current tensions as manageable - for now.

The Israel-Iran conflict has become the dominant market narrative following Israeli strikes on Iranian nuclear facilities that began June 13 and have escalated significantly. Iran's retaliatory strikes, including an attack on an Israeli hospital, have raised the stakes considerably.

President Trump's statement that he will decide "within the next two weeks" on potential U.S. military involvement represents the key catalyst markets are now pricing. As White House Press Secretary Karoline Leavitt noted, there's "a substantial chance of negotiations that may or may not take place with Iran in the near future."

This geopolitical uncertainty, rather than technical exhaustion, appears to be the primary risk factor that could drive near-term market volatility. Oil markets have remained surprisingly stable, but any escalation involving U.S. forces could quickly change that dynamic.

Contrary to concerns about AI trade fatigue, Nvidia is once again capturing Wall Street's attention as its stock edges closer to a new all-time high. The chip giant's partnership with Foxconn to deploy humanoid robots at Houston's new AI server manufacturing facility represents a milestone in AI adoption and validates the long-term thesis.

This marks the first time an Nvidia product will be manufactured with humanoid robot assistance - a development that underscores the accelerating integration of AI across manufacturing processes. With Foxconn's Houston factory set to begin production of Nvidia's GB300 AI servers in Q1 2026, the infrastructure buildout supporting AI continues at pace.

As a major AI bull with a $180 price target on Nvidia and a near-term $152 target, I view any current consolidation as healthy positioning ahead of the next leg higher. The fundamentals supporting AI infrastructure remain robust, with enterprise adoption broadening beyond the hyperscalers.

Thursday's market action demonstrated surprising resilience despite the geopolitical backdrop. The S&P 500's climb to 5,970.37 puts it within striking distance of 6,000 - a level that seemed remote during April's tariff-driven volatility. The Nasdaq's move into positive territory for 2025 reflects renewed confidence in growth-oriented names.

However, this strength comes with an important caveat: the market is essentially pricing in successful de-escalation or contained conflict. Any decision by Trump to authorize U.S. military action would likely trigger the pullback many have been anticipating, though driven by geopolitics rather than technical factors.

Beyond the headlines, structural changes continue across sectors, with Microsoft planning significant job cuts in sales and marketing as it streamlines operations amid massive AI investments - a clear demonstration of AI's productivity gains in action. SoftBank's reported $1 trillion Arizona AI complex proposal with TSMC represents the unprecedented scale of manufacturing reshoring ambitions.

Most importantly, Amazon's strategic positioning continues to strengthen. The company's $20+ billion investment in India infrastructure expansion demonstrates not just global reach, but the aggressive scaling needed to maintain cloud dominance. This reinforces my thesis that Amazon stands out amongst the Magnificent Seven as the most compelling AI opportunity.

Amazon ($AMZN ( ▲ 3.16% )) remains my top pick, and here's why the investment case has only strengthened: AWS is the undisputed leader in cloud infrastructure - the backbone upon which the world's AI innovation is built. This dominant position provides Amazon with a unique advantage in capturing the surging demand for AI-related services, from model training and deployment to data storage and processing.

By continuously investing heavily in AI infrastructure, including custom chips like Trainium and Inferentia, and strategically partnering with leading AI startups like Anthropic, Amazon is solidifying its position as the go-to platform for businesses seeking to leverage AI's power. Any earnings growth or beats have been AWS-related, validating this focus.

Beyond infrastructure leadership, Amazon is actively integrating AI across every facet of its operations - from enhancing customer experiences in e-commerce with personalized recommendations to improving fulfillment center efficiency through AI-powered robotics. This holistic approach creates new revenue streams while driving significant cost savings and operational leverage, leading to margin expansion and stronger earnings growth.

I believe Amazon will develop the lead in AI by making itself the marketplace for AI services. While other Magnificent Seven companies have embraced AI, Amazon's combination of cloud dominance, deep integration across a diverse business portfolio, and aggressive investment in future AI technologies positions it as the most resilient AI play for long-term investors.

I continue to hold IGV as a top pick, targeting software and cybersecurity as major focuses moving forward. These sectors represent the two biggest beneficiaries of the AI revolution and will be the big winners as AI adoption accelerates.

Software companies are monetizing AI through productivity gains, subscription model expansion, and new service offerings. The enterprise software stack is being rebuilt around AI capabilities, creating massive opportunities for companies with established customer bases and distribution channels.

Cybersecurity becomes even more critical as AI expands attack surfaces while simultaneously providing new defensive capabilities. The companies that can integrate AI into their security offerings while protecting against AI-enabled threats will see explosive growth.

This dual focus on software and cybersecurity through IGV provides diversified exposure to the AI theme beyond just chip manufacturers, capturing the application layer where much of the economic value will ultimately be realized.

I remain a long-term bull with conviction that stocks will be significantly higher one year from now. However, the next two weeks present a binary outcome that could drive meaningful volatility. If Trump decides against military involvement, markets could quickly push through 6,000 on the S&P 500. Conversely, any decision to engage militarily would likely trigger the consolidation many have expected.

This uncertainty argues for maintaining hedged positions near-term while staying positioned for the eventual move higher to end the year. The fundamental drivers - AI adoption, productivity gains, and infrastructure investment - remain intact regardless of geopolitical outcomes.

As a market expert, I see current conditions setting up for a classic binary outcome driven by geopolitical rather than fundamental factors. Markets are demonstrating the kind of maturity and resilience that comes from strong underlying fundamentals - AI adoption, productivity gains, and infrastructure investment remain powerful structural drivers.

Trump's decision on Middle East involvement represents a clear catalyst, but the real opportunity lies in the disconnect between short-term geopolitical noise and long-term technological transformation. The companies building AI infrastructure and applications are creating genuine economic value that transcends news cycles.

My conviction remains highest in Amazon for its foundational AI infrastructure role through AWS, and IGV for diversified exposure to software and cybersecurity - the sectors where AI's economic impact will be most pronounced. These aren't just AI plays; they're investments in the companies rebuilding the entire technology stack around artificial intelligence.

Any geopolitically-driven weakness should be viewed through this lens: a temporary disconnect from fundamentals that creates opportunity for those focused on where technology and markets are headed, not where headlines are pointing. I expect a strong finish to 2025 driven by earnings growth, margin expansion, and the accelerating adoption of AI across enterprise America.

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Dan Sheehan

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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.