Good morning investors,
I am writing this on the 5am train into London Paddington, watching the English countryside slide past as my time in the UK winds down. Next stop, Heathrow. By this evening I will be back on American soil and back into the full swing of things, which I am genuinely excited about.
Coming back into the country at a time where the next few days promise to be among the most consequential of the year with CPI tomorrow, Oracle earnings, and the largest IPO in history all landing within seventy two hours of each other.
The tape is steadying this morning after Friday's rout and Monday's partial recovery. Futures point higher across the board, with the S&P up around 0.26%, the Nasdaq leading at 0.55% on the back of a chip rally, and the Dow adding 62 points. The bounce is encouraging, but I would caution readers against reading too much into a single session in either direction right now. We are in a choppier regime than the near vertical climb that carried us from March, and that choppiness is likely to persist through the SpaceX pricing and debut later this week.
Monday's Recovery
The chip names that took the worst of Friday's beating led the rebound. The S&P added 0.3% and the Nasdaq climbed 0.86%, both clawing back a portion of what they surrendered during last week's tech rout, while the Dow bucked the trend and slipped 81 points as money rotated back toward the names that had led on the way down. Asia followed suit overnight, with South Korea's Kospi rebounding a remarkable 7% after Monday's brutal 8% collapse and Japan's Nikkei climbing more than 2%. SK Hynix jumped over 6%, Samsung gained more than 3%, and the broader Asian semiconductor complex recovered alongside its American peers.
This is the kind of violent two way action you get when positioning is stretched and sentiment is fragile. The same names swing hardest in both directions, and the daily moves tell you more about flows and froth than about any genuine shift in the underlying fundamentals.
My View: The Selling Is Not Finished
I want to be direct about where I stand, because the bounce will tempt some readers to conclude the pullback is already behind us. I do not think it is. Monday's recovery was expected and healthy, but Friday's selling was also healthy, and I suspect we have more of it ahead before this consolidation fully runs its course. The pullback does not have to arrive immediately or in a straight line. Markets rarely accommodate that kind of tidy choreography, but the froth that built up over two months of near-uninterrupted gains has only partially cleared, and I expect another leg of selling at some point soon as the market works through the catalysts stacked up this week.
None of this changes my longer-term constructive view. I continue to regard this as a froth clearing exercise rather than a top, and I would treat a deeper pullback as an opportunity rather than a threat. I would rather prepare readers for more volatility than let a one day bounce lull anyone into thinking the all clear has sounded. The setup into CPI, Oracle, and the SpaceX debut argues for patience and dry powder, not for chasing the rebound.
The Skeptics Find Their Voice
The pullback has given the bears an opening, and some of their arguments deserve engagement rather than dismissal. Brian Kersmanc at GQG offered a particularly sharp version of the case on Monday, questioning the long-term sustainability of the chip trade and making the point that many of these semiconductor names are, at their core, commodities. He framed the memory complex vividly, noting that some areas saw roughly a fifteen-fold price increase over the past year and asking how many energy stocks people would be rushing to buy if oil had vaulted from $60 to $900 a barrel over the same stretch.
It is a fair challenge and worth sitting with. Memory has always been a cyclical, commodity-like business, and the run we have seen in Micron, SK Hynix, and Samsung carries echoes of past boom-and-bust cycles. My counter remains what it has been for weeks. This cycle is different in kind because the demand is real, immediate, and structural rather than speculative. The memory being sold is being consumed now by compute that is already short of capacity, not laid down in anticipation of demand that may never materialize, which was the fatal flaw of the fiber buildout in 2000. That said, I hold the view with appropriate humility. The commodity argument is the most intellectually serious bear case out there, and I will be watching memory pricing closely for any sign the cycle is rolling over.
The IPO Floodgates Open
OpenAI has now confidentially filed for its IPO, joining Anthropic a week behind and arriving just days before SpaceX hits the public market Friday. The company carries a valuation north of $850 billion and has been preparing to go public as soon as the fourth quarter, though it insists timing is not yet decided. Alongside the filing, OpenAI plans a tender offer letting employees sell shares at the latest $852 billion valuation, relieving some of the near-term liquidity pressure that builds inside a company that has raised more than $180 billion and is still burning cash to secure compute and build infrastructure.
My honest view is that OpenAI going public is a good thing, and not only for the company. For the better part of three years the AI capex story has been driven in large part by private companies that do not report public financials, which has created an opacity problem and bred suspicion even where the underlying demand is genuine. Bringing OpenAI into the public markets pulls back the curtain and lets investors finally see the economics behind the most talked-about company of this era. That transparency is healthy for the entire ecosystem.
The risk, of course, is what the curtain reveals. If OpenAI's financials look as strong as the bulls hope, the filing will validate the whole AI infrastructure thesis in one stroke. But if the numbers show the cash burn and the path to profitability look rougher than the narrative suggests, it could spook investors and ripple across every AI-adjacent name. That is the genuine two-sided risk here, and it is why I keep flagging the IPO wave as a source of volatility into the back half of the year.
Aravind Srinivas of Perplexity captured the stakes well in a CNBC interview, acknowledging there will be real ripple effects if these offerings stumble and describing the SpaceX debut as a leading indicator for how Anthropic and OpenAI will be received. He believes the listings will go well because the companies are performing well, and he made the sensible point that these frontier labs deserve their valuations so long as the pace of model innovation holds, with any extended pause in capability advances being the thing that would genuinely dent them. Notably, Srinivas confirmed Perplexity intends to go public in 2028 regardless of how these listings land, which tells you the pipeline of AI issuance extends well beyond this week's drama.
A Note on AI Spending Discipline
One thread from Srinivas struck me as important for the longer arc of this trade. He pushed back on the idea of mindless AI spending, describing the emerging phenomenon of "tokenmaxxing," where employees ramp up their AI usage simply to signal productivity. His own product routes each task to whichever model handles it best while accounting for cost, and he made the point that if an open-source model does the job 90% of the time at a tenth or a twentieth of the price of a frontier model, that is what gets used. His conclusion was that the future remains bright for frontier intelligence but that it will not be the era of mindless spending we saw over the past several months.
This matters because it speaks directly to the ROI question that hangs over the entire capex cycle. The more disciplined enterprises become about matching workloads to the right-sized model, the more durable and rational the spending becomes, even if it grows less explosive. That is a healthier foundation for the trade than pure land-grab enthusiasm, and it is the kind of maturation I want to see.
Valuation Signals Worth Respecting
A few data points underscore why I expect more volatility before this resolves. The US market capitalization to GDP ratio has reached a record 238%, with the total market value at $75.7 trillion against a $31.8 trillion economy, a figure now ninety percentage points above the 2000 dot-com peak. That ratio has surged thirty eight points just since the March 30 bottom. Investor positioning in large cap tech has swung to its highest level since October 2025, now richer than it has been 97% of the time over the past sixteen years, a dramatic reversal from the deeply negative positioning that marked the March low.
I do not treat these as timing signals, because expensive markets can grow more expensive and crowded trades can grow more crowded, but they do tell me the cushion has thinned. When positioning is this concentrated and valuations this stretched, the market becomes more vulnerable to disappointment, which is precisely why the catalysts this week carry more weight than they otherwise would.
The Quiet Strength Beneath the Surface
For all the focus on Big Tech, the most encouraging structural development remains the breadth beneath it. The S&P 493 has doubled the returns of the Magnificent Seven this year, a remarkable statistic that cuts against the narrative of a market held up by a handful of names. AI may be driving the entire market, but Mag 7 has not kept pace with the rest of the index, which suggests the earnings recovery is genuinely broadening rather than remaining trapped in the megacaps. That broadening is one of the healthiest features of this market and a key reason I remain constructive through the inevitable bouts of volatility.
I would temper that with one caution from the labor data. Full-time employment actually fell by 79,000 in May to its lowest level since December 2024, the second consecutive monthly decline and the fourth in five months. The headline payrolls strength masks some softening in the quality of jobs beneath the surface, and as a share of total employment, full-time work has slipped to a level in line with the 2020 pandemic low. It does not change the broadly resilient picture, but it is worth keeping in view as a reminder that the economy is not without its soft spots.
Iran Wobbles Again
The ceasefire took another hit over the weekend and into Monday. Iran halted its strikes against Israel but warned it would resume should Israeli operations in Lebanon continue, and Netanyahu declared the conflict "not yet over" even as Trump posted that both sides were looking to reach an immediate ceasefire. Israel carried out a large scale strike on strategic defense systems Monday. Oil has been volatile through all of it, and OPEC+ agreed to lift output targets by 188,000 barrels per day from July, the fourth quota hike since the Strait of Hormuz closed.
My base case remains de-escalation and a drift in oil back toward the $80 level given the mounting political cost the administration absorbs with each day the strait stays shut. The weekend was a reminder that the risk is live and that headlines can move the tape sharply in the near term.
The Week's Catalysts
Tomorrow's CPI is the marquee event, expected to show headline inflation accelerating to 4.2% year over year from April's 3.8%. The bond market's reaction will matter as much as the number itself, and with the 10-year the level I care about most, I will be watching whether yields press toward that 4.75% threshold that would genuinely pressure growth valuations.
Oracle reports the same day and should deliver solid results given the strength in hyperscaler cloud commentary, though I would not be surprised if a new CFO set conservative initial guidance that disappointed.
China's trade data overnight offered a positive surprise, with exports jumping 19.4% and shipments to the US soaring more than 35% as AI related and green exports buffered the economy against the war.
And then Friday brings SpaceX, the largest IPO in history at roughly $1.8 trillion, a genuine test of the market's appetite for the mega-listings that will define the back half of this year.
Final Thought
As the train pulls toward London and my trip comes to a close, my read on the market is largely unchanged from where I left it last week. The bounce was expected and welcome, but I do not believe the selling is finished. Friday cleared some froth, Monday gave a portion of it back, and I suspect we see another leg of weakness before this consolidation has run its course. That is not a bearish call. It is a recognition that a market this stretched and this crowded needs more than one bad day to reset properly.
The longer-term case stands firm. Earnings are set to grow roughly 25% this year on the strength of agentic AI, the breadth beneath the megacaps is genuinely encouraging, and I expect a strong rally into the midterms once this housekeeping is done. The IPO wave will bring volatility and the OpenAI filing in particular will test how the market reacts to seeing the financials behind the curtain, but transparency is ultimately healthy for the whole ecosystem. Watch CPI, watch the 10-year, respect the volatility around these historic offerings, and keep your powder ready for the opportunity that any further selling will create.
I will be writing from home tomorrow, back in the swing of things.
Best regards from London,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
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.