Good morning investors,
No doubt about it, I am devastated by England's result yesterday. Argentina were the better side when it mattered, and the dream is over for another cycle. I know a fair few of you will be quietly relieved to stop hearing about the World Cup every morning, and I promise I will spare you going forward. I will give my American followers the same energy when it comes to the NFL this fall. I am looking forward to The Open at Royal Birkdale this week, so the sporting calendar has already given me something to soften the blow.
I am also excited about something closer to home. The second edition of The Planning Blueprint goes out today at 9am EST. If you have not signed up yet, this is the weekly companion to Market Pulse, built for the parts of a financial life that sit outside the daily market noise. You can subscribe here: https://the-planning-blueprint.beehiiv.com/
Where Things Stand
Good earnings ran into a chip sell off and fresh Hormuz worries yesterday, but the balance still tipped positive. The S&P rose 0.4%, the Nasdaq added 0.6%, and the Dow gained 0.3%, helped along by a second straight cool inflation print. Producer prices backed up Tuesday's CPI, posting their largest drop in 14 months, again with energy doing much of the work. Two inflation reports in two days both pointing the same direction has meaningfully shifted the rate conversation, and the odds of the Fed simply holding have nearly doubled this week.
Futures are mixed this morning. The Dow is up on a strong UnitedHealth beat, while the Nasdaq is softer as the semiconductors take another leg lower. Retail sales and jobless claims land at 8:30, and Netflix and TSMC headline another heavy day of earnings.
Two Inflation Prints, One Direction
The back to back CPI and PPI reports are the most encouraging inflation data we have seen in a while, and they revived a view I have held all year that the Fed's next move is more likely a cut than a hike. The odds of a hold have climbed from 15% to around 30% over two sessions on the FedWatch tool. When Warsh himself is so hard to read, at least the futures market gives you something concrete to track.
One caveat worth keeping front of mind, courtesy of Nick Colas at DataTrek. The Fed futures data blends two very different outcomes into a single number. When the market prices "one or two hikes," it is not forecasting a modest tightening the way a weather report calls for light drizzle at 20% odds. It is averaging two genuinely opposed scenarios, multiple hikes on one side and no hikes at all on the other, into a figure that may not represent anyone's actual base case. So read those percentages with care. The real debate is binary, and the middle is thinner than the average suggests.
The other caveat is oil. The energy relief that drove both prints is already reversing as US strikes on Iran continue and crude climbs back above $80. Next month's data may not be nearly as friendly, which is the whole reason I have kept energy exposure on as a hedge.
Wall Street's Boom Keeps Rolling
Day two of bank earnings kept the momentum going. Morgan Stanley grew profit 58%, with CEO Ted Pick calling the quarter exceptional, and its trading desk pulled in a record $6.3 billion in stock trading revenue, up 69% from a year ago. Its equity underwriting had its best quarter since 2021. That followed Goldman's third consecutive record in equities trading and JPMorgan's largest quarterly profit ever earlier in the week. BlackRock hit a record $15.3 trillion in assets.
What stands out to me is not just the size of the numbers but the confidence in the outlooks. David Solomon spoke of momentum accelerating and the flywheel continuing, and the pipeline supports it. These results were posted with the biggest IPOs still ahead. Anthropic has reportedly started investor meetings for a debut penciled in for October, DeepSeek is said to be prepping a listing, and OpenAI likely follows in 2027. Even with SpaceX now trading below its IPO price after hitting an all-time low, the pipeline for the banks looks full.
I do want to hold a note of caution alongside the good news, because the people running these firms are the ones raising it. Jamie Dimon said the environment is getting close to as good as it gets, describing a healthy, active, exuberant market with very high prices and very high volumes, and adding that they do not know how long it lasts. Warren Buffett echoed the same idea on CNBC this week, saying it is tough to find value when everyone prefers gambling, repeating his line about the market being a church with a casino attached. Retail participation and options volumes are at record highs. The last time the setup looked like this was the meme-stock frenzy of 2021, and what followed was a hard Fed pivot. The fundamentals underneath the largest companies are sound and demand for equities is strong, which argues for higher prices from here. But when the house is winning this handily and the house itself is telling you conditions cannot get much better, it is worth listening.
The Rotation That Keeps Saving the Index
Underneath a market that looks stuck, an enormous rotation is doing its work. The S&P and Nasdaq have bounced in the same range for two months, but roughly $3.2 trillion has moved between the Magnificent Seven and the chip stocks outside Nvidia. The Magnificent Seven added about $1.5 trillion in value in July while semiconductors excluding Nvidia erased nearly $1.8 trillion. Those moves have largely cancelled out at the index level, which is why the tape looks flat while so much churns beneath it.
The breadth here is better than the surface suggests, and it maps onto how I have been positioned. 44 of 51 software names are higher in July with a median gain around 6%, while the median chip stock is down close to 20%. Even with IBM's historic plunge exposing real pressure on corporate tech budgets, software has held up far better than hardware. Memory has taken the worst of it, with Micron, Samsung, and SK Hynix in a bear market after months of frenzied trading. Semiconductor ETFs are now turning over more than $40 billion a day, up from $9 billion a year ago, and chips have pushed toward 18% of the S&P, historically rare territory. One strategist drew a fair parallel to the ARKK rush of 2020, elevated volume and flows that eventually settle down.
Over the last 20 down days for the S&P, an average of 239 stocks still finished green, the highest on record and roughly triple what we saw in the 2022 bear market. Weakness is being driven by a narrow group while the average stock holds up. That is rotation, not exit, and it is the healthiest thing a market can do while it digests a stretched leadership group.
TSMC Confirms the Demand Again
TSMC reported this morning and gave the buildout another strong endorsement. Profit jumped 77% year on year, well past estimates, and the company guided third quarter revenue up sharply with operating margins in the mid to high 50s. Chairman C.C. Wei said AI related demand remains extremely robust and announced an additional $100 billion investment in Arizona, bringing its total commitment there to $265 billion for new fabs and advanced packaging to serve US customers.
One detail worth flagging cuts to the theme IBM raised. The memory boom is now squeezing TSMC's non AI business, with consumer and price sensitive end markets hit by rising memory prices and tight component supply. The same shortage that enriches the memory makers is rippling through the rest of the chip world as a cost. TSMC is also sitting on more pricing power than it is using, choosing to raise prices selectively rather than opportunistically to keep customers onside. It is a picture of a company with enormous leverage and the discipline not to overplay it, and the demand signal from its Arizona commitment is about as clear as they come, even as the broader chip group sells off.
A Note on Korea
Worth a quick mention that the Bank of Korea raised rates for the first time in over three years, to 2.75%, as inflation there climbs to its highest since 2023. Part of the pressure traces to large performance bonuses in the IT sector spilling into broader wage gains, a small window into how the AI boom is feeding inflation even in the economies building it. SK Hynix fell another 11% in Seoul overnight, extending the wild swings since its US listing, and the weakness rippled across Asian and European chip names.
Where I Land
The week has been constructive on balance. Two cool inflation prints revived the case for a hold or a cut, the banks cleared a high bar with confident outlooks, and TSMC confirmed the buildout is still accelerating. The earnings engine that drives this market is running well, and the rotation beneath the surface keeps the index steady while leadership changes hands. That is a healthy market, not a fragile one.
The caution is the same as it has been, and this week the people at the top of Wall Street voiced it themselves. Prices are high, volumes are exuberant, and the smart operators are telling you conditions cannot improve much from here. Oil is turning back up and threatening the inflation relief. My posture holds. I favor the software and megacap names that have caught a bid, small caps, the sectors making new highs, and the suppliers of the buildout, while letting the memory group come to me rather than chasing it. Energy stays on as a hedge while the Middle East is live.
Watch retail sales this morning, watch Netflix tonight, and watch how the big chip names trade into their earnings. And do take a look at The Planning Blueprint when it lands at 9. If any of this has you wondering whether your portfolio fits your goals rather than the day's headlines, that is a conversation I am always glad to have.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.