S&P 6,500 Milestone Signals Bull Run, But September Looms

Good Morning Investors,

Welcome to my 250th edition!

The S&P 500 hit 6,500 for the first time on Thursday, exactly my 2025 price target, and it did so in the face of sticky inflation risks, Fed drama, tariff threats, and AI hype fatigue. It's a reminder that bull markets climb walls of worry, and this one has scaled them with conviction. More importantly, it validates my core thesis that this earnings-led expansion has room to run toward 7,000 by mid-2026 as AI monetization accelerates.

Nvidia's latest earnings sparked some early jitters, but the AI leader is still growing 50%+ at a $50B run-rate and locking in its dominance with a $60B buyback. Despite mounting concentration risks, I'm raising my price target from $180 to $200, though I expect consolidation before we reach those levels. Meanwhile, Friday brings the month's final macro hurdle with July's PCE inflation data, setting the stage for what I anticipate will be a hawkish Fed cut in September.

Opening Bell

Futures are lower this morning: S&P 500 ($SPY ( ▼ 0.6% )) down 0.3%, Nasdaq ($QQQ ( ▼ 1.16% )) off 0.5%, and Dow ($DIA ( ▼ 0.15% )) slipping 0.3% as investors brace for fresh inflation readings. Friday's PCE data will be crucial for shaping rate cut expectations, with consensus looking for a 0.2% monthly rise and 2.6% YoY. The core figure is expected at 2.9% YoY.

In Europe, stocks fell amid pressure on British banks and growing political tensions in France. Asian markets were mixed, with China logging its strongest monthly performance in a year while Japan's Nikkei pulled back on yen strength and softer data.

The dollar is on track for a monthly loss, and oil prices are modestly lower, though both remain volatile ahead of central bank meetings in September.

Market Narrative

Nvidia ($NVDA ( ▼ 3.33% )) may be the anchor of this market, but it's not the only thing holding it up. Thursday's GDP revision to 3.3% (vs. 3.1% expected) and falling jobless claims confirmed that the US economy remains in expansion mode. The underlying strength supports my bullish case, but near-term headwinds are building as we enter historically volatile September.

Concentration Risk: The Double-Edged Sword

Nvidia disclosed that just two direct customers made up 39% of its total revenue last quarter, up from 25% a year ago. This concentration cuts both ways. While it demonstrates Nvidia's chokehold on AI infrastructure spending, it also exposes the stock to volatile hyperscaler capex cycles. The market is becoming more sensitive to this dynamic, creating both risk and opportunity.

Despite these concerns, I'm raising my Nvidia price target from $180 to $200, driven by management's projection of $3-4 trillion in AI infrastructure buildout over the next five years. However, I expect consolidation or a modest pullback before the stock advances to these levels by year-end or into 2026. More than 10 analysts raised their price targets this week, citing positioning in sovereign AI, neoclouds, and enterprise infrastructure, validation that the long-term story remains intact.

September Setup: Hawkish Cut Ahead

Valuations are now stretched with the S&P 500 trading at 22x forward earnings. Positioning is crowded: hedge fund exposure sits in the 80th percentile, CTAs are near full allocation, and mutual funds are set to rebalance. September and October are historically the most volatile months for US equities, and this year's setup feels particularly precarious.

I expect the Fed to deliver a hawkish cut in September, a rate reduction paired with cautious forward guidance that disappoints dovish positioning. This divergence between market expectations and Fed delivery could trigger the seasonal volatility that typically emerges this time of year.

Small-Cap Opportunity

The real opportunity lies in small-caps ($IWM ( ▼ 0.45% )), which continue outperforming despite heavy short interest betting against them. Equal-weight S&P approaching breakout territory signals genuine market broadening beyond mega-cap leaders. This rotation has room to run as skeptics are forced to cover positions.

Earnings Recap

AI Infrastructure Stress Tests

Dell (DELL) dropped 5% after weak gross margins (18.7% vs. 19.6% est) and cautious Q3 EPS guidance of $2.45 (vs. $2.55 est). Despite strong AI server demand, rising input costs are pressuring profitability, a theme emerging across the AI supply chain.

Marvell (MRVL) sank after guiding Q3 revenue to $2.06B (below $2.11B est), with analysts concerned about inconsistent custom AI chip sales to hyperscalers. JPMorgan trimmed its target to $120 from $130, highlighting execution challenges in the custom chip market.

Consumer & Enterprise Resilience

Ulta (ULTA) rallied after raising its FY sales outlook to $12B–$12.1B (up from $11.5B–$11.7B), citing strong skincare and makeup demand. The beauty retailer demonstrates consumer discretionary strength in key categories.

Autodesk (ADSK) raised full-year guidance on strong software demand, expecting revenue between $7.36B and $7.45B (up from $7.16B–$7.31B). Enterprise software adoption remains robust.

Tariff Headwinds Emerging

Gap (GPS) disappointed with soft comps (+1% vs. 2.3% est) and flagged tariff-related margin compression. Jefferies cut its target to $22 from $26. Caterpillar separately raised its tariff impact estimate to $1.5-1.8B for 2025, signaling broader margin pressure across trade-sensitive sectors.

Cybersecurity Momentum

SentinelOne (S) posted solid results and raised FY revenue guidance to $998M–$1.002B. ARR rose 24% to $1B, demonstrating continued enterprise security investment despite broader tech scrutiny.

Economic Data to Watch

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Crypto & China Watch

Solana (SOL) jumped above $216 this week, boosted by VanEck's staked ETF filing and institutional interest. The token is up 22% in August, outpacing both Bitcoin and Ethereum as institutional crypto rotation accelerates.

Alibaba (BABA) reported a 26% surge in cloud revenue, its best segment, though overall revenue (+2%) missed expectations. Its new domestically-made AI inference chip represents China's push for semiconductor self-reliance and could challenge Nvidia's H20 in the Chinese market. The development underscores the geopolitical dimensions of AI infrastructure competition.

Final Thought

The S&P 500 at 6,500 validates my 2025 base case, but reaching it months early reinforces my conviction that this earnings-led bull market has room to run toward 7,000 by mid-2026. As AI monetization accelerates and corporate profits expand, the structural drivers remain intact.

Small and mid-caps outperforming signals healthy market broadening, while heavy short interest in these names provides fuel for continued rotation. Global markets are firming up, helped by a softer dollar and stabilizing bond yields. Corporate buybacks continue pumping $4.4B daily into equity demand.

However, tactical patience is required. September seasonality, stretched valuations, and my expectation of a hawkish Fed cut create near-term headwinds. But these pullbacks will likely create better entry points in quality names positioned for the next phase of this expansion.

The path to 7,000 remains open, it just won't be a straight line from here.

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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.