Good Morning Investors,
Tuesday’s CPI report provided welcome relief. The inflation print came in cooler than expected, with annual CPI rising just 2.3% — the slowest since February 2021. The S&P 500 closed up 0.7% at 5,887, turning positive for the year. The Nasdaq added 1.6% while the Dow slipped 0.6%. Futures are now treading water, with attention shifting to trade follow-through and corporate outlooks.
Premarket Action
Futures are steady this morning. S&P 500 futures hover near the flatline, while Nasdaq-100 futures edge slightly higher and Dow futures gain 0.1%. Nvidia, fresh off a 5.6% jump that pushed its market cap above $3 trillion, is in focus again as AI optimism grows. Oil prices are down, gold is slightly lower, and the dollar continues to soften as rate cut expectations build.
Japan’s Nikkei dipped on profit-taking, while Chinese and Hong Kong markets rose on strength in financials. European equities are modestly weaker following a strong four-day run. The market remains in “data-watch mode,” with earnings and trade headlines steering direction.
Inflation Cools, Recession Fears Ease
April’s CPI data showed headline inflation slowing to 2.3% YoY, below expectations of 2.4%. Core CPI rose 0.2% MoM, again softer than forecasts. The surprise has markets recalibrating: Goldman Sachs lifted its S&P 500 year-end target to 6,100, while Yardeni Research now sees 6,500.
Wall Street's recession odds have shifted. JPMorgan lowered its recession risk forecast below 50%, while Barclays has withdrawn its call for a 2025 recession altogether. The effective US tariff rate is now closer to 14%, down from 24%, translating into what JPMorgan calls a “$300 billion tax cut” for consumers.
Still, risks remain. The 90-day tariff pause is one-third gone, and deals with the EU and India are not yet done. That uncertainty will likely keep markets choppy through Q2. The market will remain reactive through the China talks until they finalize a deal.
US–China Trade & Tariff Dynamics
Tesla plans to resume shipments of Chinese parts for its Cybercab and Semi trucks, illustrating the immediate business impact of the Geneva truce. With Trump and Xi expected to talk again this week, there’s hope of a more durable agreement.
Yet structural challenges persist — export controls, tech policy, and supply chain realignment still cast shadows. As we saw with Foxconn cutting its full-year outlook despite strong AI demand, the headline risk hasn’t disappeared.
AI Momentum and Corporate Highlights
Nvidia’s latest surge comes on news of major chip deals with Saudi Arabia. Crypto also caught fire, with Coinbase up 24% on its S&P 500 inclusion. Meanwhile, Apple faces pressure in China as local e-commerce platforms slash iPhone prices ahead of the “618” shopping festival.
Big Tech remains the engine for this rally. Microsoft, Meta, Tesla, and Amazon all outperformed Tuesday. Investors continue rotating into AI beneficiaries and software names tied to productivity gains.
My View
I have been calling for this bounce since the lows in April. I said the low was in and talked about buying. The squeeze move I spoke about in Monday's edition has played out over the last few days. Depending on how many hedge funds exited their positions, there's a chance for a bit more of a push higher.
That said, I expect a pullback to confirm the breakout above the 100-day and 200-day moving averages, though it doesn’t have to be immediate. I laid out this roadmap in March. I said tariffs would be rolled back, and I expected most to be gone by Q3 or Q4. That scenario is unfolding.
The initial tax deal I anticipated is now taking shape. I see a bullish end to 2025, but we’ll face volatility in the weeks ahead, especially as China headlines resurface. My base case — that this is a growth scare, not a recession — remains intact. But the risk isn’t gone. If deals with India and the EU don’t materialize or China talks break down, the recession narrative could re-emerge.
In moments like this its important to not to get carried away, but we should enjoy the progress, and celebrate that this time it was retail taking advantage of the dip and not the funds. From our portfolio management view, we were able to tax loss harvest for clients and rotate the portfolios where we have benefitted from being overweight tech for the past month.
Stocks to Watch
• Tesla: Resumes China-U.S. component shipments; board to review Musk comp.
• Meta: Faces EU injunction threat over AI data use.
• Apple: Sees deep iPhone discounts in China.
• Nvidia: Tops $3T valuation on Gulf chip deals.
• JD.com: Gets price target bump on delivery segment growth.
Analyst Recommendations
• Boeing Co: TD Cowen raises target to $200 from $180 after strong April deliveries.
• JD.com Inc: JPMorgan boosts target to $48 from $46, citing food delivery upside.
• Rivian Automotive Inc: Jefferies downgrades to Hold on demand concerns.
• UnitedHealth Group Inc: Oppenheimer cuts target to $400 from $600 after guidance suspension.
Final Word
We’ve now erased 2025’s market losses and shifted from survival mode to opportunity-seeking. But after a euphoric run, a period of digestion is likely. We are in the middle innings of a macro re-pricing — and while the pace of inflation is slowing, the path to policy relief is still data-dependent.
Momentum is real, but so are headline risks. Don’t confuse market strength with macro certainty. Tariff relief may buy time, but the real gains will come from strategic clarity — both in policy and positioning. That means staying invested, remaining patient through volatility, and continuing to align portfolios with secular growth themes like AI, productivity software, and platform infrastructure.
I remain constructive into year-end — but this is a rally that will require stamina as well as strategy. Keep your discipline. Stay long. Stay nimble.
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.