Market Pulse with Dan Sheehan

Good Morning Investors,

The S&P 500 just logged its fourth record close of the week, and it's now up 2.6% month-to-date. With earnings continuing to surprise to the upside and AI Capex turning from narrative to reality, investors are rewarding commitment over caution. We've seen flashes of defensive strength emerging in staples, telecom, and healthcare stocks, but instead of signaling a pullback, these rotations may actually signal the beginning of an all-sectors rally that could provide fuel for the next leg higher. As we head into the final stretch of July, I still expect the S&P to finish the month strong.

Next week brings heavier macro risks with the Fed meeting, jobs data, and the August 1 trade deadline, but the underlying trend remains bullish. The bid is broadening. Tech is still leading, but other sectors are starting to join the rally.

Stock futures are modestly higher this morning, with the S&P 500 ($SPY ( ▲ 1.54% )) and Nasdaq ($QQQ ( ▲ 1.54% )) both set to close the week near record highs. S&P 500 futures are up 0.1%, Dow ($DIA ( ▲ 1.94% )) futures are adding 51 points, and Nasdaq futures are flat. Durable goods orders will set the tone for the day, but markets are already looking ahead to next week's heavy macro slate.

With 83% of S&P 500 companies beating earnings estimates so far this quarter, mega-cap tech continues to outperform and equity strength is broadening. The Dow underperformed Thursday due to IBM and UnitedHealth, but the broader rally remains intact.

This quarter has made one thing clear: investors want to see action on AI, not just slides. Alphabet ($GOOGL ( ▲ 3.17% )) delivered exactly that, lifting its full-year Capex forecast by $10 billion to $85 billion. Two-thirds of that is going to servers and proprietary TPUs, the rest to data center expansion. That's not cost, it's positioning.

The market rewarded the move, brushing off a 61% drop in quarterly free cash flow. Revenue rose 14% year-over-year, Google Cloud margins doubled, and Gemini's integration into search, ads, and enterprise workflows continues to scale. AI Overviews now serve more than 2 billion monthly users across 200 countries. Alphabet trades at a forward P/E of 18.88, still below the S&P 500, even with better-than-market growth.

They're not alone. Microsoft spent $19 billion in Capex last quarter. Amazon is set to hit $60 billion this year across AWS, logistics, and advertising. Nvidia's operating leverage, roughly $4 million in earnings per employee, remains the benchmark.

Collectively, the Magnificent 7 are now expected to invest over $200 billion into AI infrastructure in 2025. This is no longer a pilot project. It's a global arms race.

Intel ($INTC ( ▲ 5.53% )) beat on revenue but missed on guidance, confirming more than 20% in workforce reductions under new CEO Lip-Bu Tan. His "no blank checks" approach signals a tighter operating model and a shift toward capital discipline. The company expects a deeper Q3 loss than analysts forecast, though Q2 revenue came in ahead of expectations.

Tesla fell 8% after reporting a 16% drop in year-over-year auto revenue. Musk emphasized long-term innovation with robotaxis, autonomy, AI, but in the short run, Tesla is still a car company, and that part of the business is under pressure.

Deckers posted a strong quarter, driven by international demand for Hoka and UGG. Digital Realty and Edwards Lifesciences both beat and raised. Paramount's $8.4 billion sale to Skydance received regulatory approval, and Mohawk Industries authorized $500 million in share buybacks while issuing upbeat guidance.

Durable goods orders for June are expected to drop 10.8% after last month's massive 16.4% gain. While the data will inform rate expectations, it likely takes a backseat to what's coming next week.

The big three: the Fed's July meeting, July payrolls, and the August 1 trade deadline.

Markets expect the Fed to hold rates steady, but Chair Powell's tone will be closely watched given rising political pressure. Trump's visit to the Fed's headquarters this week was more performance than policy, but it reflects the broader dynamic heading into election season.

On trade, India continues to push for favorable terms. Previous deals with Japan and Indonesia offered temporary relief, but any unresolved tension could weigh on August sentiment. Until then, the market seems content to ride the earnings tailwind.

We're firmly in the "build" phase of the AI cycle. The market is signaling that it's willing to overlook near-term FCF pressure if it comes with clear infrastructure scale and forward monetization potential.

Capex is no longer seen as a margin threat. It's seen as a moat. This is especially true when paired with cost discipline - Alphabet has kept headcount tight while still executing on the largest infrastructure scale-up in its history.

Retail continues to provide resilience. Even as hedge funds drove the April selloff, retail investors stepped in and bought the dip. The volatility profile has shifted. Investors are more patient, more educated, and more focused on the long-term payoff.

Defensive strength in staples, telecom, and healthcare is worth watching. These sectors catching a bid, even modestly, may signal not retreat, but rotation into a broader, all-sectors rally. If this trend continues, it could broaden the rally and take the S&P 500 even higher into August.

The PEG ratio continues to serve as a helpful filter. Alphabet at ~1.2, Amazon at ~1.5, both still look underpriced relative to their growth and investment momentum.

Blackstone: JPMorgan raises price target to $160 after earnings beat

Nasdaq Inc: PT raised to $111, reiterating full-year guidance

A.O. Smith: PT increased to $80 on China upside and Q2 strength

Honeywell: Target lifted to $222 following upward forecast revision

Sarepta: Downgraded to Underweight due to paused Elevidys shipments

We're watching something rare unfold: the market is rewarding spending, not punishing it. That only happens when the opportunity feels transformative, and right now, AI is that opportunity. This exemplifies exactly what we mean by investors rewarding commitment over caution.

This isn't about hype. It's about infrastructure, capacity, and long-term strategy. The companies that are building aggressively today will be the ones monetizing effectively tomorrow.

There are still risks, monetization lag, regulatory noise, geopolitical friction, but when the smartest companies in the world all start investing at this scale, it's worth paying attention.

And for now, the market is. I still expect a strong July close.

Please feel free to reach out to me on LinkedIn or by email if you would like help navigating this market environment or have any planning-related questions.

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.