Good morning investors,
This is the most important earnings report of the quarter.
Nvidia reports after the close today. The chipmaker has contributed roughly 20% of the S&P 500's returns this year and nearly that much of the index's earnings growth. What Jensen Huang says tonight will set the tone for semiconductor stocks and likely the broader market through month end.
Futures are recovering this morning after three consecutive losing sessions. S&P 500 futures have climbed 0.4%. Nasdaq 100 futures are up 0.8%. Dow futures have added 75 points, or 0.2%.
Oil prices are providing some relief. WTI has dropped 1.9% to $102.14. Brent has fallen 2% to $109.03. The pullback is helping sentiment after weeks of elevated energy costs pressuring inflation data.
The 10-year Treasury yield touched 4.687% yesterday, the highest level since January 2025. The 30-year briefly topped 5.19%, its highest reading in nearly 19 years. This bond market pressure is the primary headwind facing equities right now.
Tuesday's Selloff
Stocks fell for the third consecutive session as rising yields continued to weigh on valuations.
The S&P 500 dropped 0.7%. The Dow fell 0.7%. The Nasdaq lost 0.8%.
The selloff was broad-based. After weeks of ignoring inflation data to push to record highs, the market is now processing what those numbers mean for monetary policy and borrowing costs.
The minutes from the Fed's April meeting arrive this afternoon at 2 PM ET. Investors will parse the language for any signals about how divided the committee remains and whether rate hikes are seriously on the table.
The Nvidia Setup
Analysts expect adjusted earnings of $1.78 per share on revenue of $79.2 billion. The numbers matter, but the guidance and commentary matter more.
Investors are watching several themes beyond the hard numbers.
First, any details about Huang's China trip. The Commerce Department cleared 10 Chinese companies to purchase H200 chips, but no deliveries have occurred. Progress toward recapturing market share in the world's second largest economy would be significant.
Second, the competitive landscape. Cerebras debuted last Thursday to enormous fanfare. Amazon and Google continue developing custom silicon. Nvidia may see signs that its dominant position faces pressure, or it may confirm that the AI infrastructure buildout has room for multiple winners.
Third, the demand trajectory. Every hyperscaler has raised capital expenditure guidance this year. Microsoft is spending 40% of revenue on capex against a historical norm of 12-15%. The question is whether this spending rate can continue accelerating.
My view is that Nvidia will beat and raise as it has consistently done. The stock has been relatively subdued against other semiconductor names during this rally. It reached recent highs but has not made the parabolic move seen elsewhere in the space. Nvidia remains the leader of the AI ecosystem. I remain bullish from here.
Bond Yields Reach Uncomfortable Levels
The 30-year Treasury yield briefly crossed 5.19% yesterday, levels not seen since 2007. The 10-year pushed toward 4.7%. These are not normal conditions for equity markets accustomed to lower borrowing costs.
Global yields are moving in lockstep. Japanese 5-year government bond yields hit a record 2.04%. The 30-year JGB touched all-time highs before pulling back slightly. UK gilts, German bunds, and Japanese bonds are all repricing simultaneously.
One strategist described this as a global "duration reset" that should tighten financial conditions gradually rather than trigger systemic stress. Japan's debt market remains largely domestically financed with massive household savings buffers providing support.
But the direction is clear. Bonds are selling off worldwide as inflation proves stickier than expected. The Fed's next move is more likely a hike than a cut according to market expectations. Kevin Warsh inherited a challenging situation that grows more complicated by the day.
Fund Managers All-In
Bank of America's May Global Fund Manager Survey is flashing three contrarian sell signals simultaneously. Equity allocations hit net 50% overweight. Cash dropped to 3.9%. The Bull and Bear Indicator reached 7.8.
Investors are the most overweight cyclicals versus defensives since January 2018. Technology overweight is the highest since February 2024. Bond underweights fell to net 44%, the lowest level since June 2022.
Roughly 73% of managers now view "long global semiconductors" as the single most crowded trade in the market, up from 24% in April.
The last 24 times fund managers reported cash falling below 4%, global stocks logged a median 1% loss over the following four weeks. The worst drawdown was 29%. The best gain was just 4%.
This does not mean a correction is imminent. But it does suggest that optimism has reached levels that historically precede disappointment rather than continued gains. The margin for error has compressed.
Target Turns a Corner
I have been critical of Target and skeptical of Michael Fiddelke's elevation to CEO. This quarter is starting to give me some hope for the company.
Target beat expectations convincingly. Earnings came in at $1.71 versus $1.46 expected. Revenue hit $25.44 billion versus $24.64 billion expected, the largest revenue beat since November 2021.
Same-store sales jumped 5.6%, the first positive comparable sales number in five quarters. Traffic across stores and digital platforms grew 4.4%. The company doubled its full-year sales growth forecast to 4%.
The turnaround appears real. Strength came from baby, kids, health, and wellness categories. Food and beverage sales rose 6% after Target added 3,000 new items. Non-merchandise revenue including memberships and marketplace spiked nearly 25%.
Fiddelke is executing on the investment-heavy strategy he outlined when taking the role. The consumer, while cautious, is responding where Target is leaning in. This is early progress, not mission accomplished, but the trajectory has shifted.
Lowe's Holds Steady
Lowe's reported results that beat expectations but left investors underwhelmed. Shares fell more than 2% in premarket trading.
Adjusted earnings hit $3.03 versus $2.97 expected. Revenue came in at $23.08 billion versus $22.97 billion expected. The company reaffirmed full-year guidance of flat to 2% comparable sales growth.
The picture mirrors Home Depot's report yesterday. Professional customers remain engaged. DIY projects continue to be deferred. The housing market remains challenged with mortgage rates elevated and turnover suppressed.
This is not a growth story. It is a holding pattern until rates come down and housing activity normalizes.
Mortgage Demand Weakens
Rising rates are taking their toll on housing.
Total mortgage application volume dropped 2.3% last week. The average 30-year fixed rate climbed to 6.56%, the highest in seven weeks.
Purchase applications fell 4% and are now just 8% higher than the same week last year when rates were closer to 7%.
Perhaps most telling: the adjustable-rate mortgage share of applications rose to nearly 10%, the highest since October 2025. Borrowers are reaching for riskier products that offer lower initial rates because conventional fixed-rate mortgages have become unaffordable for many.
"Ongoing concerns around inflation from higher fuel costs combined with rising concerns over global public debt pushed Treasury yields higher in the U.S. and abroad last week," one economist noted.
SpaceX IPO Takes Shape
Goldman Sachs is expected to secure the lead left position on SpaceX's initial public offering. Morgan Stanley will serve alongside as lead banker.
The prospectus could be released as soon as today. SpaceX is targeting roughly $75 billion in proceeds at a valuation of approximately $1.75 trillion, which would make it the largest stock market flotation in history.
The upgraded Starship V3 is ready for its debut launch this week ahead of the offering. Musk needs a successful test to satisfy investors and demonstrate the rocket's capabilities.
This IPO, if it proceeds at the reported valuation, would reshape the public market landscape for space and technology companies.
Samsung Strike Looms
Wage talks between Samsung Electronics and its workers union broke down overnight. More than 47,000 employees are now set to strike beginning tomorrow.
Shares edged slightly higher despite the news, suggesting the market has largely priced in the disruption. But an 18-day walkout affecting 3-4% of global DRAM supply would have real consequences for memory pricing and availability.
This reinforces the case for Micron, which carries none of the labor risk hanging over South Korea's memory giants. The U.S.-based manufacturer has gained HBM market share while Samsung's position has eroded.
China Confirms Boeing Order
China's commerce ministry officially confirmed the purchase of 200 Boeing jets announced during President Trump's visit.
Beijing also said it will seek an extension of the trade truce set to expire in November. If finalized, this would mark Boeing's first major Chinese order in nearly a decade.
The confirmation provides some tangible outcome from the summit, even if it fell short of the 500 planes initially expected. Boeing and GE Aerospace, as the primary engine supplier, both stand to benefit.
Final Thought
Everything short term will hinge on what Nvidia reports tonight.
A strong beat with raised guidance would validate the AI infrastructure thesis and potentially reverse the three-day losing streak. A disappointment, or even guidance that merely meets expectations, could accelerate the selloff given how extended positioning has become.
The bond market is applying pressure that equity investors can no longer dismiss. Yields at these levels matter for valuations, for housing, for corporate borrowing costs, and for the relative attractiveness of risk assets.
Fund managers are all-in on equities and abandoning bonds. History suggests caution when positioning reaches these extremes.
Stay invested but acknowledge the risks.
The cycle has years to run. The next few months may require patience.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered investment advice. Market Pulse is an independent publication by Dan Sheehan and is not affiliated with, sponsored by, or associated with my employer. Please consult with your financial advisor about your specific situation.