Good morning investors,
The week opened on a wave of AI optimism that carried the Dow to a fresh record high of 53,055, its first close ever above 53,000. The S&P and Nasdaq had even stronger sessions, gaining 0.7% and 1.2% respectively, helped along by more oil relief and a steady read on the service sector. Technology led the charge, with semiconductors rebounding and the software names surging back toward records. It was a broad, healthy advance, and the kind of session that reminds you the underlying trend remains firmly higher even after a choppy few weeks.
This morning brings a familiar countervailing pull, though. Nasdaq futures are down 0.9% as the chips roll over again, with Micron off 5% in the premarket and Nvidia, Broadcom, AMD, and the equipment names all lower. The pressure started in Asia overnight, where South Korea's Kospi fell nearly 5% and triggered a circuit breaker after Samsung dropped almost 7%. The Dow, less exposed to tech, is actually holding a small gain in futures, which tells you the rotation story is very much alive. SpaceX joins the Nasdaq 100 today, and I will come to what that does and does not mean.
The Samsung Paradox and the Earnings-Season Bar
The Samsung reaction overnight is the single most instructive thing in the market this morning, and it frames the risk for the weeks ahead. Samsung reported a massive jump in second quarter operating profit to a fresh high, exactly the kind of number that should have sent the stock soaring. Instead it fell nearly 7%, dragging the entire Korean market down with it, as concerns about spending and demand overshadowed the blowout.
That reaction speaks directly to the biggest risk facing markets over the coming weeks. Second quarter earnings are likely to be robust on an absolute basis, but unlike the first quarter season, expectations are now extremely bullish and the S&P sits far higher than it did heading into those Q1 releases. The bar is elevated. We have watched this movie repeatedly in recent weeks, with FedEx and even Micron initially, where genuinely strong numbers met selling pressure because the run into the print left no room for anything short of perfection. Samsung is the latest reminder that in this environment, good is not automatically good enough, and the market's reaction to results matters as much as the results themselves. I would brace for more of this kind of counterintuitive price action as earnings season unfolds, particularly in the most extended corners like memory.
Why This Is Not the Dot-Com Bubble
The bubble chorus grows louder every time the chips wobble, so let me address it directly with the framing I keep returning to, because the fear is fixated on price while the story is really about earnings. The S&P has gained more than 9% this year, yet its forward price to earnings ratio has actually fallen from 22.2 times to 20.4 times. The market is cheaper today than it was in January despite being higher, because earnings estimates have grown roughly twice as fast as the index itself. Fundamentals are steering the cheapening, not fear or negative sentiment.
The market trades at the same forward multiple today as it did in May 2024, yet the S&P is more than 40% higher. That is two full years of returns driven by earnings growth rather than multiple expansion. Even though stocks cost more in absolute terms, they represent a better value than they did two years ago because the earnings underneath have compounded so quickly. This is the opposite of what defines a bubble. In March 2000, tech traded at 55 times forward earnings and the broad market at 25. Today those figures are roughly 22 and 20. The froth that exists lives in the optimism of future estimates, where Wall Street now expects nearly 20% earnings growth over the next 12 months, about double the ten-year average. That raises the stakes for delivery, but it is a fundamentally healthier setup than paying bubble multiples on hope. Price is not the problem. Expectations are the thing to watch.
The Cybersecurity Baton
The intra-sector rotation within technology continues to be one of the most encouraging features of this market. As the memory names consolidated, the software leaders surged back toward records, and cybersecurity in particular has grabbed the ball. Names like CrowdStrike and Palo Alto have taken leadership, and I find the framing of cybersecurity as a genuinely cross-sector trade compelling. It is part software, part cloud, part AI buildout, and part old-fashioned enterprise spending, which gives it multiple engines rather than dependence on any single narrative.
This fits precisely with how I have been positioned and what I wrote yesterday. Cybersecurity is AI-levered without being exposed to the capex-funding question that has spooked the broader complex, and its recurring revenue offers a way to stay in the theme while sidestepping the volatility of the pure chip names. That the baton passes so cleanly from memory to software to security, rather than the whole complex selling off together, is the signature of a deep, broadening bull market. The tech trade is not one trade. It is many, and the leadership rotating among them is exactly what keeps the broader indices aloft while any single group takes a breather. Tech funds are on pace for record annual inflows, which tells you the capital keeps finding the next leg even as it rotates.
My Fed View: The Next Move Is a Cut
I want to stake out a position that runs against where the market has landed, because conviction is worth stating plainly. The odds of a Fed cut in 2026 have collapsed to just 21%, a stunning reversal from just months ago when markets priced up to four cuts this year. The entire conversation has flipped toward hikes on the back of sticky inflation and Warsh's price stability focus.
I still maintain that the next move the Fed makes on interest rates will be a cut, not a hike. I recognize this is the contrarian view right now, and I have been honest that the hawkish repricing caught me leaning the wrong way in the near term. But step back and consider the setup. Oil has fallen below pre-war levels, which means the energy driven inflation that pushed CPI to 4.2% is set to reverse in the second half, dragging headline inflation lower with it. The labor market just showed real cracks, with June payrolls at 57,000 and heavy downward revisions to prior months. Prime age participation posted one of its largest monthly drops on record. That is not the picture of an economy that needs higher rates. My differentiated view remains that Warsh tightens through the balance sheet rather than the funds rate if he tightens at all, and that as inflation cools with energy, the door opens to a cut framed alongside footprint reduction. The market is positioned for hikes. I think the data bends the other way as the year progresses.
This Is a Global Bull Market
One theme I want to emphasize more, because it is easy to miss amid the US-centric headlines, is that this is a genuinely global bull market. The Global Dow advance-decline line made new highs yesterday, another breadth signal pointing to durability, and it is the international version of the domestic breadth strength I keep highlighting. When participation is broadening not just across US sectors but across world markets, it speaks to a synchronized, fundamentally driven advance rather than a narrow theme.
This is why owning other parts of the world makes real sense right now. The AI buildout is powering economies across Asia and Europe, emerging market tech was actually the best performing sector globally in the first half, and international valuations remain more attractive than the US in many cases. I have favored international exposure on valuation grounds for a while, and the global breadth picture reinforces it. Diversifying beyond US borders is not a hedge against the AI trade so much as a way to own it more broadly and at better prices in some markets. In a world this synchronized, home country bias leaves opportunity on the table.
SpaceX Joins the Nasdaq 100
SpaceX enters the Nasdaq 100 today, which is expected to unleash billions in passive buying as index funds mechanically add the position, and Wall Street is kicking off coverage with broadly bullish views. The bull case increasingly rests on SpaceX evolving into a hyperscale AI infrastructure provider, using its cash to fund Grok against OpenAI and Anthropic, on top of the rockets and Starlink connectivity.
My view has not changed since the IPO, and the stock dipping 2% ahead of its debut this morning does not alter it. The business has real, valuable assets, but I have counseled patience rather than chasing the post-listing euphoria, and the round trip from $225 down toward $158 has validated that. The index inclusion is precisely why measured exposure reaches most portfolios automatically now, without any individual needing to reach for the stock at elevated levels. The float remains small, lock-ups begin rolling off in the coming months, and the valuation prices enormous execution on technology that does not yet exist. Let the passive flows and the float settle. If SpaceX is the transformative company its believers claim, there will be plenty of runway after the dust clears.
The Cracks Worth Watching
I always want to give you the risks honestly, and two data points caught my eye that reinforce my emphasis on quality. Small-cap interest burdens have climbed to 31% of EBITDA, the highest in at least six years and more than double 2020 levels, with roughly 30% of Russell 2000 debt tied to floating rates and nearly 40% of the index unprofitable. This is exactly why I keep stressing that within small caps, I want the profitable, domestically driven names rather than the index wholesale. The zombie tail is genuinely vulnerable if rates stay elevated, and it is the soft underbelly of the small cap thesis I otherwise like.
More concerning is intensifying stress in private credit, where investors requested a record $15.6 billion in redemptions last quarter and only 38% of those requests were met, leaving the largest backlog on record. When funds cannot meet redemptions, it signals real illiquidity building beneath the surface. This is not a flashing red light yet, but it is the kind of plumbing stress that bears watching, because private credit has ballooned during the easy money years and has never been truly tested in a higher for longer environment. I flag it not to alarm but because genuine risks deserve naming alongside the optimism.
The Fragile Peace, Still the Biggest Risk
Oil continues to ease, with domestic crude around $68 and gas prices slowly drifting lower, feather-like as always. The relief remains a genuine tailwind for the consumer and inflation, but the US-Iran agreement stays fragile, and I would echo the view that it is the single biggest risk to markets for the rest of the year. Oxford Economics put the odds of a durable deal at a coin flip, and laid out how a breakdown could cascade, with higher energy prices, AI supply-chain disruption, and renewed rate-hike pressure all arriving together, potentially alongside new tariffs.
Reports of fresh attacks on vessels near the Strait of Hormuz revived supply fears and nudged oil higher overnight, a reminder that the situation can turn on a headline. My base case remains that the deal ultimately holds, driven by the powerful political incentive on both sides to resolve it before the midterms. The path there, though, will keep delivering exactly these tremors, and a cheap energy subsector offers real protection if one of them turns serious.
Final Thought
The Dow above 53,000 captures the strength of this market, and the internals underneath, with breadth broadening across sectors and around the globe, reinforce that the bull is transitioning into a healthier, more distributed phase rather than ending. Earnings are strong and abundant, as one strategist put it well, and that abundance is spreading beyond the megacaps to the wider market and to international shores.
My posture holds. I favor software and the beaten down Magnificent Seven within tech, where value has opened up, alongside cybersecurity for its multiple engines and defensive AI exposure. I remain overweight the sectors quietly making new highs, namely healthcare, financials, insurance, and industrials, and I continue to like international markets on valuation and the global breadth signal. I would let the semiconductor consolidation play out before adding there, given the broken uptrend and the elevated earnings season bar that Samsung just illustrated. I still expect a drawdown somewhere in the second half, yet the reasons for optimism keep stacking up, and I hold to my contrarian view that the Fed's next move is a cut as energy-driven inflation fades.
Watch the earnings season bar closely, because how stocks react to good numbers will tell us a great deal about sentiment and positioning. Watch the fragile Iran peace as the key macro risk. And watch the rotation, because as long as the baton keeps passing cleanly from one leadership group to the next, this bull has room to run.
Stay invested, stay disciplined, and if the recent volatility has you questioning whether your portfolio is built around your goals rather than the headlines, that is the conversation I would most welcome having.
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.